/ 18 October 2023

Broke and stressed, South Africans spiral into debt trap

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Many South Africans are in poor financial shape, spending all or more than they earn, while working long hours and worrying about money, which is affecting their mental health. 

The inaugural NedFinHealth Monitor 2023 study, launched by Nedbank in Johannesburg  this week, and followed by a panel discussion, provides insight into the financial health of consumers, delves into the intricacies of what builds it, and highlights the impact on mental well-being.

Nedbank executive for financial wellness and advisory, Frank Magwegwe, said the study customised research from the Financial Health Network — a think-tank that works with several American universities — by drawing insights from a “nationally representative sample” of 1 503 South Africans, to reflect their “current reality”, “ambitions” and “challenges” as they aspire to improve their financial health status.

“The NedFinHealth Monitor dives deep into the intricacies of what financial health truly means for the nation and what drives it. It also underscores the path towards a more financially secure future for all South Africans,” said Magwegwe. 

The study focused on four main indicators of financial health: spending (how money is managed relative to income and living within one’s means); saving (to protect against short-term and long-term financial shocks); borrowing (how well debt is managed and controlled) and planning (whether individuals have a habit of planning for current and future financial activities).

According to the report, South Africa’s financial health score is at 53, hovering slightly above the midpoint, suggesting that while there is a good foundation for financial health, a significant portion of the population could benefit from enhanced skills, behaviours and habits.

A total of 62% of respondents reported that their spending “equals or exceeds their income”.

“For some respondents, spending exceeds income because of changes in income and expenses. Thirty-five percent of South Africans say their income declined in the past 12 months. Seventy-six percent of South Africans say their expenses increased in the past 12 months,” the report found.

“When spending exceeds income, South Africans overwhelmingly turn to credit to make ends meet, using formal credit, such as credit cards, payday and personal loans, as well as informal debt, including borrowing from loved ones and loan sharks.”

A total of 37% of respondents had taken a payday loan over the past 12 months and 30% said they had accessed their accrued wages/salary ahead of their scheduled payday in the past 12 months.

Lack of emergency savings 

When it comes to savings, most do not have sufficient funds for emergencies, nor do they have enough savings to cover their living expenses for at least three months. Only 14% of South Africans are “moderately confident”, while  11% are “very confident” that they are on track to meet their long-term financial goals.

A significant percentage of South Africans are struggling to keep up with their debt obligations, as 42% of respondents across income levels say they cannot manage their debt. Only 16% say they have no debt.

“Unmanageable debt is having a significant impact on the mental health of 67% of South Africans who constantly worry about their household debt,” the study found.

A total of 49% of respondents said it is “okay to take on debt” to cover household expenses such as groceries, clothing, furniture, appliances, electricity and water.

In addition, Magwegwe said the report noted that physical and financial health are linked, and that as perceptions of physical health elevate from poor to excellent, there is a corresponding rise in financial health scores. 

Those who described their physical health as poor represented 1% of the sample, and they recorded a low financial health score of 35, markedly lower than any other group. In contrast, the cohort identifying their physical health as “excellent” comprised 20% of respondents who had the highest average financial health score of 61.

He said the study found that more than a third of South Africans spend six or more hours at work worrying about their finances and that poor financial health is linked to stress and anxiety.

Magwegwe said workplace stress costs Africa an estimated R200 billion in losses annually.

“We show up, as we’ve done today. Yet we are stressed about money. We are worried about money, we are anxious about money. 

“I think of it as the walking wounded because you do what you need to do. It doesn’t mean you’re not stressed, you’re not anxious and not worried … When we talk about the fabric of society, there is no way an individual who is stressed, worried, anxious can have good social relationships, can be at their job and do their best,” he said.

He said staff were sitting at work presenting an “every game of your mind”  kind of thinking such as, “‘Yes, I’m doing my job now. But if interest rates continue going up like this … that house might be repossessed.”

“So, we are saying to employers, ‘This hits your bottom line, do something about it.’ That’s our call.”

He said the report recommended that employers and policy-makers “do more to protect those who find themselves struggling”. 

This included implementing holistic educational programmes to guide consumers beyond the basics of finances to include lessons on the psychological aspects of money, planning for the future and real-life financial scenarios, while providing support mechanisms and tailored financial solutions.

“Help them to help themselves; use technology to help them to budget,” he said.

The psychology of money 

Commenting on the findings of the study, Independent Counselling and Advisory Services managing director and psychologist, Navlika Ratangee, said there are many psychological factors linked to money.

“Money is a very emotional topic and so very much linked to how we may be feeling on a particular day, as well as our emotional well-being over a more extended period, but even the day-to-day emotions that we feel impact our spending behaviour. 

“As one example, if we are feeling stressed, or anxious, maybe not about money as yet, maybe about something else, it impacts our ability to make decisions around money as well,” she said.

Ratangee said “retail therapy” was one behaviour people justified when they were feeling stressed and wanted to feel better about their situation.

“We’re not actively thinking about whether we can actually afford to have retail therapy or not, whether what we are buying is what we need. We’re actually just looking at ‘how do we fill that gap’, the free feeling, right to instant gratification,” she said.

National Credit Regulator education and communications officer Alfred Matsimbi said it was “scary” how many people were battling financially and impacted by debt, largely due to a lack of basic financial education.

“Behind these numbers are human beings. And that is a sad reality. Just to know that these are not just numbers but human beings. And, unfortunately, over-indebtedness has got this negative impact,” he said.

“There are many people who even go to the next level, taking their own lives, because they are over-indebted. 

“So, it’s about time that we turn the direction. Financial education must go deep down into the schools, into the kindergarten, so that more and more children who are graduating from primary to secondary already know something about budgeting,” he said.

“Many South Africans get addicted to debt … retail therapy leads to addiction to debt. More and more people are buying, forgetting that tomorrow you’ll be over-indebted and once you’re over-indebted, all hell breaks loose,” he said.