Fifty-eight per cent of households across South Africa are facing high, or overwhelming, financial stress as the Covid-19 crisis impacts people’s savings and raises debt levels, the latest Old Mutual Savings & Investment Monitor, released on July 16, shows.
The survey has tracked the shifts in habits and attitudes towards saving and investing of South Africa’s working metropolitan households since 2009.
This year, in light of the Covid-19 pandemic, the research was conducted with a special focus on how people are being affected by the economic downturn and the financial implications of the Covid-19 pandemic. This research was conducted online with just under 1 500 respondents from May 29 to June 23.
A key finding is that as many as 57% of those surveyed are earning less than they were at the end of February, while 40% of those currently employed only have enough funds to survive for one month or less should they lose their jobs.
As many as 66% of the respondents stated that they are constantly worried about losing their job or income.
Overall, satisfaction with the current financial situation is down from 6.3 in 2019 to a mean score of 5.3 out of ten this year.
Old Mutual research and insights head Lynette Nicholson says more than 50% of households are currently dipping into their savings just to make ends meet, while 37% have fallen behind on paying household bills and 23% have cashed in a savings/investment policy.
“Another indicator of the distress the crisis has caused is that only one in two credit card holders are able to comfortably make their repayments every month.”
The levels of dependency have also grown. In 2015, those with other adult dependants (excluding spouse/partner) was at 35%. This year it spiked at 52%.
The research also shows that those supporting their own children and helping to care for elderly parents or relatives increased from 34% in 2019, to 42% - the highest figure ever recorded for this category.
Debt and loans have also increased, with 43% of households taking personal loans from financial institutions, which is up from 21% in 2019.
In addition, the research finds that 19% of respondents are taking loans from family or friends, up from 13% in 2019, and 12% are borrowing from micro-lenders, up from 5% in 2019.
“Another interesting finding relates to South Africa’s informal savings” she says. Although membership of stokvels has declined from 44% to 34% this year, there are more people now contributing to grocery schemes, from 9% in 2019, to 23% this year.
In light of the situation, Nicholson says there is no greater time than now for people to make responsible and informed financial decisions to ensure they can withstand the pressure and not compromise their long-term savings goals and financial futures.
Old Mutual financial education head John Manyike advises that, to ensure financial wellbeing, people should always seek expert financial advice, and remember that during times like these, knowledge plays a crucial role in the financial decisions. “Equip yourself with financial understanding to ensure you make the right decisions.”
He adds that people should examine their finances, paying special attention to expenses to plan properly for the future. “Consider having a ‘side hustle’ to supplement your income, and find ways to downscale your lifestyle to free up additional cash.”
In addition, Manyike advises cash strapped people not to borrow from their future, not be tempted to draw from retirement savings and to use credit responsibly.
“If you have already consolidated your debts to ease the pressure, avoid further credit. Be very responsible and cautious about buying on credit to avoid debt spiralling out of control.”
He also notes that people should be transparent with their family about the debts they have to service so expectations can be managed and to help them adjust.
In terms of investments, Manyike notes that people should not be tempted to disinvest because of panic, as markets are generally volatile during uncertain times but will self-correct over time.
Relief measures should also be carefully considered. “Before you approach a credit provider or accept any offer of debt relief or a payment holiday, make sure you understand the terms and conditions of the agreement.”
Lastly, he advises people to build an emergency fund over time.
“Ideally you need a safety net that’s the equivalent of six months of income.”