The debt trap - how depressed finances lead to depressed consumers

12 Sep 2023

Psychotherapist Diane Salters says people facing severe debt are likely to feel shame and fear. They may not think clearly and may go into automatic fight, flight or freeze responses.

Despite the encouraging signals that salaries are improving and inflation is declining, South Africans have a long way to go before they pull themselves out of the financial hole that they dug during Covid and the recession years.

The first Sanlam Financial Confidence Index released this week found that 81% of South Africans surveyed experience stress when managing their finances; only 35% of South Africans trust their financial abilities, and only 34% possess insurance coverage for unforeseen financial risks.

Key findings included:

Only 35% of respondents trust their financial abilities.

Those aged 40 to 60 exhibit the lowest self-trust levels.

57% feel confident identifying suitable financial products.

67% exhibit courage in negotiating financial matters.

52% have access to credit, while an equivalent percentage rely on friends and family for financial support.

33% don’t feel embarrassed about their childhood financial situations.

Only 17% don’t experience unhappiness regarding their current financial circumstances.

The sad picture of South Africans who have little confidence in their money management skills ties in with the recent Eighty 20/XDS Credit Stress Report for the second quarter of the year and Momentum’s Consumer Pulse for the third quarter of 2023.

According to the first, the balance on all loans was up 1.9% quarter-on-quarter at R2.37-trillion, while overdue balances had increased to R189-billion. This significant increase in overdue balances was primarily driven by a 37% (R4.7-billion) increase in the overdue balance of home loans.

For those with an overdue balance on their home loan, the average overdue balance increased from R46,034 to R56,510, or an average of 10 additional monthly payments required to catch up the overdue amount.

The Momentum Consumer Pulse reveals that there is increasing evidence of consumers feeling the pinch from past interest rate hikes.

One of the tell-tale signs of the previous interest rates working into the economy has been credit growth as consumers use debt to supplement their income in order to meet their monthly financial commitments.

The second tell-tale sign is the increasingly stretched debt-service cost-to-disposable income ratio, which has inched up from 7.4% in the third quarter of 2022 to 7.9% in the fourth quarter, and then to 8.4% in the first quarter of this year.

“The debt service cost-to-disposable income ratio is still relatively contained compared to levels reached during the Covid pandemic in 2020 and the global financial crisis of 2008,” Momentum says.

“However, we expect the debt service cost-to-disposable income ratio to increase further in light of elevated interest rates and negative real wage growth. This points to financial pressure on consumers in the coming months as debt obligations increase.”

Mental health toll

Psychotherapist and transactional analyst Diane Salters says people facing severe debt are likely to feel shame and fear. They may not think clearly and may go into automatic fight, flight or freeze responses.

Unaddressed mental health conditions, including depression and anxiety, cost the South African economy an estimated R161-billion per year, according to Investec Focus Radio SA.

“Money worries are not just numbers on a balance sheet. They can bring down the strongest person, leading to mental illness and even thoughts of suicide,” says Shafeeka Anthony, marketing manager of JustMoney.co.za, a site that helps educate South Africans to make good money choices.

“People going through a financial crisis can feel that their situation is inescapable and that they have no control. As we navigate these tough economic times, it’s important to acknowledge how deeply interlinked money and mental health are.” DM

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Mental health toll