South Africa has been in a recession for years with the majority of families not making ends meet with their monthly financial commitments. The problem is many of those in debt have no clue how to get out of it and it just becomes worse over time. I noticed this back in 2017 because the money was just not being spent by consumers like it once was.
The South African Reserve Bank revealed how bad consumer debt is currently with the average consumer spending 75% of their take home pay each month refinancing debt. Refinancing debt does not help unless you cut back and make drastic lifestyle changes. All that is going to happen over time is that debt will only increase as we saw this number rise from 65% to 75% within 2 years. Manageable debt is recommended at no more than 36% so this is double that and there is no getting out of that hole.
Another worrying stat is the number of people going into retirement whilst still having debt which is not exactly something to be recommended. This number is at 40% so it is creeping up to nearly half of new retirees.
What I find more concerning is what is all this debt teaching the next generation as they should be learning from their parents. Looking from outside in it seems life was too easy with the majority of people living to the max budget limits and when interest rates rose they were already in trouble.
Roughly half the debt is owed to the banks and lending companies with he other half owed to utilities like water and electricity. This not paying the utility bills has a knock on effect because prices will rise for everyone. Last year electricity rose by more than 19% and we have another hike in April of 12%. More than R300 billion is owed by households to their local municipalities due to unmanaged household budgets.
Municipalities are desperate to receive some form of payment because the majority of municipalities are bankrupt. Corruption and mismanaging funds is always an ongoing issue and are no better than the people who spend more than they earn.
I know if we don't pay our utility bill we would be cut off within 7 days so for some reason others are allowed to get away with not paying. The big problem will arise when more people move off the grid leaving all the non payers which is estimated at over 25% footing the bill. The poorer households receive 6000 liters of water per month free plus 50 units of electricity. This is a bill the municipality has to cover plus all other unpaid bills the consumer racks up. The entire system is not functioning how it should because people cannot manage their finances.
Another interesting statistic is that only 40% of the population pays income tax and the total collected is decreasing every year with the biggest drop of 7.5% in 2021. This is the reason why the government is looking at any new scheme to impose taxes. This is the gold fish bowl scenario being played out in real life and as people leave the financial system they are not being replaced.