In South Africa, a significant portion of adults, approximately 40%, are reportedly resorting to borrowing money to purchase food. Moreover, two out of five individuals have experienced electricity shortages in the past year due to financial constraints.
These findings stem from the latest study by FinMark Trust, the FinScope Consumer South Africa 2023, which indicates that living costs consume as much as 85.3% of the average monthly income for South Africans, based on a sample size of 5,000.
For many, this financial strain makes it nearly impossible to allocate funds towards savings, investments, or leisure activities after covering basic expenses.
According to the FinScope study, groceries account for 30.4% of expenses, while energy constitutes 11.5%, transportation 9.1%, communication 8.8%, and routine household maintenance, rental, and rates each comprise approximately 8.5%.
Jabulani Khumalo, senior data and analytics specialist at FinMark Trust, highlights the challenge of allocating more than 10% of income to household energy expenses, including electricity.
He also noted that the recent 12.74% increase in Eskom's tariffs, coupled with the absence of indications of interest rate reductions, may exacerbate the financial burden on consumers in 2024.
The escalating costs, combined with financial constraints, have led to two out of five individuals experiencing electricity shortages in 2023 due to affordability issues.
This situation disproportionately affects minimum wage earners. Research from the Pietermaritzburg Economic Justice and Dignity group reveals that electricity and transport expenses alone consume over 60% of a minimum wage worker's income, leaving minimal resources for food, savings, investments, or leisure activities.
Long-term Consequences of Rising Living Costs
Khumalo said that a sizable portion of consumer income is absorbed by essential expenses, with limited funds available for savings, investments, and leisure pursuits, hindering their ability to plan for the future and achieve financial goals.
According to FinScope results, a staggering 86% of economically active adults in South Africa, equivalent to six out of seven individuals, lack a retirement plan.
Moreover, about two-thirds of middle-class individuals (earning between R9,999 and R20,000 per month) do not have retirement financial products, as immediate financial needs take precedence over long-term savings.
Additionally, the surge in immediate financial demands has led South Africans to increasingly rely on credit. In 2023, over 27 million South Africans were active credit users, with approximately 35% of them borrowing money or using credit to cover unforeseen expenses or daily needs, resulting in a surge in personal debt.
Out of these 27 million credit users, 10 million are three months or more behind in debt repayments or facing legal action and adverse credit listings.
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