How we are coping with less money

Two-thirds of working households admit to high levels of stress around their finances, and are making changes to the way they borrow and spend money, writes Maya Fisher-French

The trend from the annual Old Mutual Savings and Investment Monitor in the last three years has been one of a deterioration in household’s attitudes towards their finances, but this year marked a sharp drop in financial satisfaction amongst higher income earners which have, until now, been largely unaffected by the weaker economy.

The survey, which interviewed 1000 working households in major metro areas, found that over a third of high income households (R40 000+ per month) described their stress levels around money as “high”.

In terms of all income brackets, two-thirds of those interviewed claim to experience high levels of financial stress with nearly 17% admitting to feeling “overwhelming stress”.

“Of particular concern was the question around a households’ ability to handle unforeseen expenses which suggests that most households are one or two pay cheques away from a calamitous position,” says Lynette Nicholson research manager for the Savings and Investment Monitor who adds that the tipping point is significantly earlier than 2015, indicating that many households have depleted their savings and have already accessed the credit lines available to them.

“This is borne out by the increase in the proportion of household income that is going towards servicing debt,” says Nicholson who adds that loans from friends and family is particularly prevalent.

It is also clear that three years of a weakening economy has depleted most of our emergency savings.

Although 50% of households would be able to cover an unforeseen expense of R1000 from savings, only a quarter would be able to cover a R5 000 emergency from savings – the rest would have to access debt.

A third of those interviewed said that they could not even borrow enough money to cover a R10 000 unexpected expense, let alone have sufficient savings put aside

Tristan Naidoo, legal manager at Old Mutual says that the statistics do provide some positives – reducing expenses during tough economic times were one of the findings whereby South Africans cut back on entertainment and non-essential items.

“In terms of the way forward, the only advice that one can give is to continue to make those sacrifices, set a strict plan and then stick to it. Do not get caught into the debt cycle by taking on more debt to “make ends meet’ in the hope that things will improve. The economy is not likely to recover soon and increasing debt will just result in higher monthly repayments”.

Who we borrow from

In order to make ends meet 56% of total respondents said that they borrow from friends or relatives with 30% saying that they would draw money from savings and 26% admitting to paying bills late or missing payments altogether.

High income earners are most likely to use their credit cards to make ends meet, although nearly 30% of these top earners admitted to borrowing from family and friends.

It may not, however, be a good idea to lend money to those family and friends looking for loans as the respondents also admitted to a fairly poor repayment rate for family loans. When asked about their rate of repayment 34% said that they pay back family and friends “irregularly/when I can”.

High income earners are increasing their access to credit lines with a sharp increase in store cards, personal loans and overdraft facilities. What is concerning is that only 13% of respondents pay their credit cards in full each month with 58% paying the minimum installment.

Where we cut back

As money becomes tighter, households are, out of necessity, changing their habits and behaviors and luxury spending is the first casualty.

Just under half of working metro dwellers claim that they have to forego “pleasure spending” either all the time or a lot of the time.

This includes those households with an income above R40 000 with a third of this income segment admitting that in the last year they have found that their income did not cover their living costs.

Irrespective of income levels, holidays, eating out and entertaining friends at home are the major areas we are cutting back to help make ends meet.

Non-essentials such as alcohol, shoes and clothing, cigarettes and hair and beauty are all also casualties of the tighter budget, although it is concerning that 61% of respondents are looking to cut back on hiring domestic workers which would compound the financial stress of many lower income earning households.

Children’s education costs are also under pressure with a quarter of respondents saying they have had to cut back on children’s schooling costs with nearly a fifth of higher income earners cutting back on their kids’ education.

According to the survey, other coping mechanisms include avoiding situations where one may be tempted to overspend, DIY instead of getting paid contractors in and taking packed lunches to work more often and delaying the purchase of a new car.

South Africa’s working households

1 000 interviews amongst working South Africans living in major metropolitan areas.

. Average household size is just under 4 people

. 23% live at home with parents with half of those aged 18 – 30 still living at home.

.80% for those aged 31-49 have children as dependents

. 48% of mothers considering themselves single mothers reaching as high as 71% in households with incomes less than R6000

. Only 12% receive regular support from the father

.38% have dependents other than children

. 72% who have older family expect that they will end up supporting them

Five household income brackets are:

. Less than R6 000

. R6 000 – R13 999

. R14 000 – R19 999

. R20 000 – R39 999

. R40 000+

Tristan Naidoo, legal manager at Old Mutual takes a look at helping you to free up some money so that you are able to use it to become financially independent.

Some basic steps to assist in reducing your overall debt is to:

. start by paying off the most expensive debt first, which are those debts that attract the highest interest rates, such as your credit cards and shop cards.

. after clearing the most expensive debts), focus on settling the next most expensive debt by paying more than the minimum instalment amount.

After going into debt, it is a common behaviour to clear it after receiving a cash windfall, but then promptly start going into debt all over again. Although it is a good idea to pay off your debts, it is equally important to change your habit as well.

Therefore, once you’re debt-free, try to spend on a cash basis going forward, which will encourage purchasing items that are only essential for your circumstances. Furthermore, with less money being utilised to settle debts with creditors, you would be in a better position to start thinking about investing your money for important goals such as saving for an emergency fund, i.e. making your money work for you and not you working for your creditors.