Young South African adults are spending for today and not saving for tomorrow

By Neesa Moodley

23 Jun 2024

Two new consumer surveys highlight the need for better personal finance education.

Two separate studies show South Africa’s young people are accessing retail credit, not managing it responsibly, and failing to save for the long term.

Experian’s Consumer Default Index (CDIx) for the first quarter of 2024 shows that young people account for 16.4% of credit-active South Africans, with a high bias towards retail credit.

The index measures the rolling default behaviour of South African consumers accessing credit. The youth category includes those new to the workforce, in a mix with labourers and possibly working students earning low salaries, and records their spending on non-essential goods.

Although the default index for the youth category dropped significantly from 21.9 in March 2023 to 16.8 in March 2024, Experian says this doesn’t necessarily mean their finances have drastically improved.

Instead, the credit rating agency attributes the decrease to the fact that young people are finding it harder to access new loans as the supply of credit in this category has not returned to pre-pandemic levels.

“We have seen a slowdown in credit extension to young and credit-inexperienced consumers, so, while fewer defaults are good, limited access to credit can hinder financial progress,” says Jaco van Jaarsveldt, Experian’s head of commercial strategy and innovation.

“This highlights the need for increased financial literacy and responsible credit options for young South Africans.”

Youth spending patterns reveal a trend towards a high dependency on retail and clothing store credit.

The National Credit Regulator (NCR) points out that many students, leveraging stipends or allowances from parents and financial aid, obtain credit facilities but fail to use them responsibly.

The impact of this behaviour can last for years with negative listings on people’s credit profiles. A poor credit profile can hamper access to future credit and affect employment options, particularly in the financial services sector.

Simphiwe Mthembu, manager of education and communication at the NCR, says building a good credit history takes time and discipline, but is essential for long-term financial health.

Managing credit responsibly

Mthembu provided the following tips to help young people manage credit responsibly:

Assess the necessity of debt: Before taking on debt, consider if it is truly needed and explore legal alternatives.

Evaluate affordability: Only take credit you can comfortably repay.

Choose registered credit providers: Select reputable providers who offer credit suitable to your financial situation and make sure you fully understand the terms of the agreement you are signing.

Commit to payment schedules: Ensure timely monthly payments and avoid missing instalments.

Communicate financial hardships: Engage with your credit provider proactively if financial difficulties arise.

Embrace financial responsibility: Don’t evade debt obligations; face them responsibly to avoid financial distress.

The Nedbank 2023 Consumer Tracker Survey, which surveyed 1,744 young individuals, found that while an impressive 90% of participants had some form of short-term instant-access savings account, the numbers dropped dramatically when it came to longer-term savings and investments.

Only 56% had a notice savings account, while 46% had a fixed deposit account. Only about a quarter of those surveyed said they had a retirement investment and 24% had invested in unit trusts.

Babalwa Nonkenge, head of retail investments at Nedbank, says the survey shows that low incomes and high living expenses are very real barriers to long-term savings, with 45% of respondents earning less than R5,000 per month.

Other factors include a focus on immediate “wants” rather than long-term “needs” and not realising the significant benefits of investing early in life, even with small amounts.

“Young adults often lack education in personal finance management, leading to poor financial decisions and a focus on short-term spending over long-term investment planning,” says Nonkenge.

She emphasises the importance of educating young people on the benefits of starting their investment journey early.

“Compound interest allows investments to grow over time through different economic cycles. By starting early, with small amounts, one builds the healthy habit of regularly putting money away.” DM

This story first appeared in our weekly Daily Maverick 168 newspaper, which is available countrywide for R35.

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Managing credit responsibly