Credit crazy shoppers could be in for a nasty hangover come 2013. (Duncan Alfreds, News24)
Cape Town - Given today’s exorbitant petrol price of just under R12 per litre, if Santa were to drive the full circumference of the earth (40 075km) he would be looking at a petrol bill of close to R40 000.
While flying reindeer may compensate for this, with the cost of even basic food items such as lettuce (a reindeer favourite) increasing by 64.78% in just one year according to the August 2012 Food Price Monitor, reindeer are perhaps also a rather costly mode of transport these days.
Couple this with the weak rand and ever-increasing toy prices and poor Santa, much like the majority of consumers, is sure to find himself rather over-extended this Christmas.
The unfortunate truth is that many South Africans are already over-extended and with Christmas just around the corner most are going to find themselves in an even worse financial position come January.
According to statistics released by Compuscan the average credit active individual has four open credit facilities, excluding their credit cards, with average repayments amounting to R2 537 per month. In addition, while 63.7% of individuals spend R2 000 or less on their monthly repayments, 12% spend between R5 000 and R10 000 per month.
Furthermore, the country’s current debt-to-income ratio stands at 76.3%. This means that for every R100 each household earns, R76.30 goes towards servicing debt.
Although substantially lower than the 82.7% high of 2008, it is still a frightening figure. This also means that there is very little surplus money for Christmas luxuries such as tinsel and brandy pudding.
The drop in the debt to income ratio from 82.7% to the current 76.3% can be attributed to the fact that interest rates are at the lowest level since 1974, which has made credit more affordable.
However, it may be this very fact that, together with today’s macroeconomic climate, has aided the dramatic rise in unsecured lending. A report released by the National Credit Regulator earlier this year showed that unsecured credit, which makes up 9.1% of total credit, has risen by 49.4% year-on-year (y/y).
In addition, 59.31% of unsecured credit granted and 62.27% of short-term credit granted, for the third quarter of 2012, was granted to individuals with a monthly income of less than R10 000, according to the latest Consumer Credit Market Report.
The recent surge in unsecured lending is the culmination of several factors, but all come down to the same basic conclusion – consumers are struggling to make ends meet. This can be seen by the fact that, according to the Consumer Credit Market Report, consumer credit stood at R1.39 trillion at the end of September 2012.
Furthermore, according to the latest Credit Bureau Monitor, the number of consumers with impaired records increased by 28 000 in the previous quarter to 9.25 million - 47% of credit active consumers.
Unfortunately, consumers are not only applying for credit to cover larger expensive purchases such as home renovations and vehicle finance, but also for everyday basic items such as food and transport.
According to the FinScope Consumer Survey conducted by FinMark Trust last year, consumers are increasingly using credit for items such as food, transport, school fees and electricity.
Petrol now a luxury item
When the survey looked at the main reasons people lend money, 26% said “to buy food” – an increase from 18% in 2010. In addition, 16% said “to pay for transport”, up from 13% in 2010, and 5% said “to pay for electricity”– up from 0% in 2010.
Petrol, once seen as an essential daily expenditure, has now become a luxury. A mere 10 years ago motorists were paying just over R3.50 per litre of petrol – compare this to the R11.87 being paid today and you are looking at a 329% increase.
Electricity price hikes have also emptied the purses of consumers and with Eskom recently announcing that it plans to raise prices by 16% for the next five years, consumers can expect to be paying double the current price come 2018.
Housing is another factor eating away at the Christmas dreams of consumers. According to the FNB Estate Agent Survey, a total of 20% of home sellers are downscaling due to financial pressure.
Furthermore, the PayProp Rental Index for the second quarter of 2012 shows that tough economic times have forced more homeowners to sell their houses and opt for renting.
Unfortunately, it’s not just tenants feeling the effects. Landlords too are being forced to limit rent increases to below inflation to protect rental income and with 15% of the population depending, at least in part, on rental income this will have a significant effect on several consumers’ back pockets.
With the overall cost of living on the rise, credit becomes the only solution to bridge the gap for those whose income no longer meets their needs. Unfortunately, this is a significantly large portion of the population.
In July 2012, BankservAfrica launched its Disposable Salary Index which indicated that disposable income seems unable to keep up with rising inflation. According to the report, disposable salaries grew at their lowest since September 2005 at only 3.3% y/y.
With stagnant salaries and increasing prices not much money remains for filling stockings. In addition, gifts this Christmas are also likely to be far higher in price as a result of the weakened rand. On October 8 2012 the rand plummeted to R8.99 – the weakest it has been in three-and-a-half years.
This can be seen as a direct result of the past month’s labour unrest and the current budget deficit. In addition, indirect influences such as credit downgrades by Moody's and Standard and Poors have weighed heavily on the rand’s strength.
Unfortunately, currency troubles are likely to affect smaller importers and retailers who will be forced to pass this onto their consumers just in time for Christmas shopping.
Despite these gloomy statistics, there are still those who will manage to avoid the Christmas crunch. Although one cannot control increasing inflation, sky high electricity prices or the frequency of strikes, one can pay more attention to one’s budgeting and spending habits.
In these turbulent times, saving, planning and budgeting are the only way to ensure a stable financial future and it is vital that all consumers learn these lessons sooner rather than later.
Let’s just hope, for the sake of boys and girls of all ages, that Santa has.
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