Johannesburg, South Africa,

South Africans Sunny About Financial Prospects, But Storm Clouds Remain

South African consumers remain optimistic about their finances, despite current economic challenges that include high inflation and recent interest rate hikes. According to a TransUnion survey, about one third (34%) of households saw an increase in income in the second quarter of 2023, with seven in 10 (72%) expecting their income to increase in the next year.

According to TransUnion’s quarterly Consumer Pulse Study, income growth is being driven largely by salary raises (17%) and starting new businesses (15%). For the 24% of households who saw their income drop last quarter, job losses (21%) and cuts in wages or salaries (17%) were the main contributing factors.

Weihan Sun, Director of Research and Consulting at TransUnion Africa, said that while consumer optimism reflected resilience and showcased the potential for recovery and growth, the financial status of households continues to vary widely between different demographics and age groups.

Six out of 10 (62%) of consumers expect to be able to meet their current bills and loan obligations in the coming quarter, although half (50%) of Gen X respondents (born between 1965-1980) are worried about their ability to pay all their bills.

“While one-third of families report an increase in their income, almost a quarter are facing a decline. Most people remain optimistic about their future income, but the management of debt remains a major concern. As a result, we’re seeing consumers changing their spending behaviour by reducing discretionary spend and cutting back on big-ticket purchases,” said Sun. “This could have knock-on effects in sectors like retail, automotive and real estate in the short to medium term.”

According to Stats SA1, South Africa’s annual consumer inflation slowed to 6.8% in April, from 7.1% in March. This is the lowest since May 2022, when the rate was 6.5%. Cooling inflation will be welcome, particularly around food prices. South Africa avoided a technical recession with the economy growing by 0.4% in the three months to March 20232, after a 1.1% decline in the prior quarter.

Nearly six in 10 (58%) respondents have reduced discretionary spending, with 36% cancelling subscriptions or memberships. Gen X and Baby Boomers (born between 1946-1964) have made the most significant cuts in discretionary spending, at 67% and 79%, respectively. Four in 10 Baby Boomers (41%) expect an increase in bills and loans, while both Millennials (1981-1995) and Gen Z (1996-2012) intend to increase contributions to retirement funds and investments, reflecting a generational pivot towards securing long-term financial stability.

Managing financial choices

An overwhelming 89% of South African consumers recognise the importance of access to credit and lending products for achieving their financial goals. This sentiment is particularly prevalent among younger generations. However, only a third (34%) believe they have sufficient access to credit, with only 31% of Gen Z consumers believing their access to credit is sufficient.

Despite these concerns, only a third of consumers plan to apply for new or refinance existing credit in the coming year, with 29% planning to apply for a personal loan and 28% for a new credit card. Nearly half of those who intended to apply for credit or refinance abandoned their plans, due to the high cost of new credit (35%), fear of rejection due to income or employment status (26%) and finding alternative funding sources (23%).

Regarding credit monitoring habits, the data reveals a stark contrast among consumers. While 92% of consumers believe keeping track of their credit reports is crucial to effective financial management, only 50% do so at least monthly, and 21% never check their credit reports at all. Nearly half (48%) believe their credit scores would improve if businesses used non-standard data such as rental payments, gym membership payments, or buy now, pay later (BNPL) services to help calculate their scores.

Identity risks and usage

Digital fraud remains an issue for South African consumers, with just over half (57%) reporting they have been the target of fraud schemes in the last quarter. Of those, 9% fell prey to a scam. The most prevalent type of fraud attempts are money/gift card scams (37%), phishing schemes (where fraudsters try and get personal information through fraudulent emails, websites, or social media platforms, 36%), and smishing (using text messages to trick recipients into divulging personal information, 32%).

“Overall, it's clear that consumers are at risk of falling victim to scams. This indicates a significant need for stronger security measures and robust fraud prevention strategies in the digital space,” said Sun.

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