Johannesburg, South Africa,

SA Consumers Prioritise Stability Over Discretionary Spending and New Debt

  • Quarterly TransUnion Consumer Pulse Study shows 74% of consumers expect their incomes to rise in the next year
  • Responsible budget strategies show a commitment to saving for emergencies, investing more into retirement planning and paying down existing debt faster
  • Consumers will cut non-essential spending as they battle to pay bills and service credit which, along with a rise in the cost of goods, will impact the retail sector over the upcoming festive season

Research by information and insights company TransUnion shows that, even within the context of higher-than-expected inflation, the risk of yet more interest rate hikes, and soaring food and fuel prices, consumers remain optimistic about their finances.

According to TransUnion’s Q4 Consumer Pulse Study, 74% of the observed households expect an increase in their incomes over the next 12 months and only 6% expect a decrease. This is despite the reality over the last quarter being somewhat different: only 34% of households reported actual increased incomes during that time, and almost a quarter (22%) have seen a decline.

Lee Naik, CEO of TransUnion Africa, says that this optimism suggests that there is potential for recovery and growth: “Under a magnifying glass, the interplay between consumer income, spending, and debt shows a determination to improve long-term financial well-being by cutting non-essential spending in order to save more and reduce existing debt levels.”

Consumers have adapted their budget strategies over the past three months, with 29% paying down their existing debts faster, 25% saving more in emergency funds or stokvels, and 18% saving more toward their retirement.

As economic headwinds batter disposable incomes, nearly half (47%) of consumers said they would cut down on dining out, travel and entertainment, and spend less on retail shopping and big purchases in the next three months. South Africa’s retail trade rose by 0.9% from a year earlier in September 2023, following a downwardly revised 0.3% decrease in the prior month and better than market forecasts of a 0.1% increase. Retailers are hoping for a further recovery in spending during the festive season but, with the cost of goods having risen by 5.4%, consumers are mindful of affordability.

Financial health

Optimism over future earnings is also being tempered by the rising cost of credit commitments. With the prime lending rate at 11.75%, a significant increase from 10.5% in Q4 2022, only 59% of households expect to be able to meet their current bills and loan obligations.

In a demonstration of proactive debt management, 34% of respondents will dip into their savings to service their debt in the short-term, while 31% plan to make at least partial payments within their means.

A larger proportion of Gen Z (born 1995-2004) and Millennial (born 1981-1996) respondents indicated that they were struggling, while they will not be able to meet their credit commitments in the coming quarter (34% and 42% respectively), many intend to increase contributions to their retirement savings (44% and 40% respectively) and are prepared to curtail large purchases to do so (35% and 40%, respectively).

Financial inclusion

Attitudes towards credit remain largely unchanged from Q3. Although 92% of consumers (marginally up from 90% in Q3) believe that access to credit is essential for financial inclusion and economic participation, only one in three intends to apply for new credit, or to refinance existing credit, in the next year. Within this segment, 29% are interested in a credit card and 31% in a personal loan.

During the quarter, only half of the consumers (50%) who considered taking out credit applied. The rest were deterred by the high cost of new credit (33%), or they feared rejection due to their income or employment status (24%). Another 24% tapped an alternative funding source.

Naik notes that access is also seen as an impediment to borrowing: “Thirty-eight percent of respondents said they do not have sufficient access to credit. This shows a need for bureaus to include alternative data, like mobile data in credit scoring. It will also be interesting to see the effect of including overdraft facilities in credit scoring, which is in the implementation stages.”

Half of the surveyed consumers (50%) believe their credit scores would improve if alternative data was included.

Consumers agree that monitoring their credit reports is very important (31%), if not extremely important (35%), with 67% saying they check their credit reports at least every quarter.

Consumers can get their free annual credit report from TransUnion here.