Consumers buy cornflakes on credit

June 1, StatsSA announced that the country’s unemployment rate continued to worsen, hitting 32.6% for the first time since the study was launched in 2008. Among young people, the figure is much worse, hovering around 46 %. Caused by the ravages of the pandemic where millions of people have lost their jobs or suffered wage cuts, the latest statistics point to the ongoing crisis affecting us at the micro and macro levels. In particular, it was the middle class that was hit the hardest, with a forecast from Transaction Capital indicating that 34% are expected to exit this demographic because of the need for former employees to switch to informal employment or to move away from it. ” accept short-term jobs. futures contracts. With fewer consumers reporting earning over R22,000 per month and more now earning less than R8,000 per month, this trend is expected to continue. Among low-income groups, those earning the national minimum wage (R3 643.92) continue to experience extreme hardship; the cost of a basic nutritional food basket for a family of four costs R2919.47, which leaves exactly R724.45 to cover everything else, putting them at significant risk of going into debt to survive . Where can they go for help?

In response to this deteriorating personal finance landscape, the government is considering introducing a Basic Income Grant. Aimed at the unemployed and people aged 19 to 59, its introduction follows the end of the Covid-19 social relief grant for R350 distress. Despite the provision of short-term aid, the amount is well below the poverty line, which is at approximately R561 a month. With a shortfall of a few hundred rand, many will have no choice but to ask for help.

According to a recent Debt rescue survey, it is most often help from family and friends (30%), savings (36%), sale of assets (10%) or resorting to expensive credit providers. To put the latter in perspective, PayCurve recently published its own survey, indicating that 80% of all South Africans resort to unsecured credit or payday loans. Both result in extraordinary costs given the interest incurred on the principal amount of the loan, especially if it is from a loan shark who may charge between 50% and 112% in interest. This is utterly unsustainable and puts South Africans in a dangerous situation where debt is used to pay off debt – it is deeply worrying and deeply difficult.

Regardless of how you get extra funds, there are a lot of expenses that need to be covered. Given that the average household food basket is R4 137.11 (household affordability index), how the costs of electricity, water, transport, school fees and medical expenses are they covered, many of which have increased recently? Eskom’s 15% price hike is a good example, as is the rise in fuel prices which has had a big ripple effect on everything that needs to be transported. We have also seen South Africa’s inflation rate rise in March 2021 to 3.2%, and this is something that will likely continue in the months to come, further affecting prices and the end user. .

Credit providers are often the only “way out”. Evidenced by the fact that, according to our April consumer data, 42% said they opened a store card to shop for groceries. It is alarming and totally unsustainable; food is the only thing that should only be paid for in cash – unfortunately this is not a new trend. In 2018, Debt Rescue reported the same consumer behavior as many turned to retailers to purchase food on credit. Even though it has been claimed that funds are only given to those who can afford it and will use it responsibly, the fact is that many consumers still use the credit to buy their cornflakes and pay them back more. late.

The purchase of food on credit is symptomatic of a larger problem. Consumers who have experienced a change in their financial situation, whether through cuts or wage cuts, are struggling and taking on more debt will only make matters worse. Often the only way out is to hire a debt counselor who can work with them to get out of a devastating debt spiral.

The problems faced by middle-class South Africans are evident in responses to our April survey: almost half (48%) buy meat and vegetables on sale, 18% have changed retailers and have opted for cheaper store brands (14%). 82% are also looking for good deals. This is not surprising given that 89% said the cost of food and goods is significantly higher than 12 months ago.

It is simply untenable. Consumers who have been financially affected by the pandemic are struggling and failing to make ends meet. With so many millions joining the ranks of the unemployed, there are only two options: credit or government grants. Both present a set of concerns and challenges, although the latter means increased pressure on treasury coffers, which are already besieged by competing demands. Becoming dependent on government is not what we want or need. We need to find ways to revive the economy where small businesses are better able to hire or rehire employees. According to the National Development Plan, small and medium-sized enterprises (SMEs) are expected to account for 90% of all jobs by 2030. If so, we must find ways to help these businesses get back on their feet and to grow. so that they are able to employ again.

Unfortunately, the end is not in sight and we will likely see more bloodshed in the market. With one in 12 jobs lost, it is estimated that employment rates could take until 2025 to return to pre-pandemic levels. What will happen between now and then is deeply disturbing, especially as unscrupulous loan sharks rush on the most desperate in our society, offering financial “help” that will bankrupt them even more and generations to come.

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