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Posted on January 30, 2017 at 12:00 PM

Two thirds of respondents describe their level of financial stress as overwhelming or high

5 July 2016: South African households are increasingly cutting back on living expenses as they grapple with their stressful financial positions. This is one of the findings from the 2016 Old Mutual Savings & Investment Monitor, released today, which tracks the shifts in the financial attitudes and behaviour of South Africa’s working metropolitan population.

"The findings also reveal that confidence in the South African economy has plummeted to an all-time low of 31% - a considerable decrease from 55% in 2015 - with two thirds of respondents describing their level of financial stress as overwhelming or high."

Lynette Nicholson, research manager at Old Mutual, says that these findings reflect the dire state of the broader economy, with GDP growth forecasts now around 0.5% for 2016.

She says that this widespread sense of financial distress is further highlighted by the number of individuals relying on loans, especially from friends and family, with a noticeable increase in the proportion of household income spent on servicing debt – jumping from 12% in 2015 to 16% in 2016. "The 2016 research shows a spike in personal loans across all income groups, with the number of loans taken from financial institutions (21%), friends or relatives (15%) and micro lenders (8%) all on the increase since 2015 when levels were 16%, 10% and 4% respectively."

Another worrying indicator is the finding that fewer homeowners are paying additional lump sums into their bonds. "Individuals are instead sticking to the minimum payments each month, essentially maximising their future interest owed. When it comes to servicing credit card debt, only 13% of South Africans pay their credit card off in full at the end of the month, with an increasing number of card holders only paying the minimum instalments."

In terms of saving for retirement, she points out that a staggering 41% of property owners consider their primary residence to be part of their retirement nest egg, with the use of pension and provident funds decreasing over the past year. "Dependency on children for future care and financial assistance during retirement is also at its highest level yet at 45%, up 4% since 2015. This finding correlates with a steadily rising sandwich generation - those who are supporting not only children, but also parents or other ageing dependents - which reached a record high of 29% in 2016, climbing considerably from 25% in 2015.

"Single moms seem to be particularly affected, with one in three supporting at least one parent, and only 12% receiving regular support from the father, resulting in an overwhelming 80% of single mothers reporting that they do not feel financially secure," adds Nicholson.

She says the monitor found that in response to these financial hardships, households are attempting to cut costs where possible, curbing spend on luxuries such as travel (88%) and entertainment (86%). "For example, according to the survey, 77% of South Africans avoid situations where they may overspend and 71% take more packed lunches to work."

Nicholson says the continued sharp increase in stokvels and savings clubs is another indicator that South Africans are actively looking to improve their financial positions. Stokvels remain a popular informal savings vehicle, with 59% of black households contributing to at least one stokvel per month.

While commending the cost cutting and other coping mechanisms adopted by South Africans, Nicholson is not sugar-coating the challenges that lie ahead. "The general loss of confidence witnessed throughout the country, coupled with a dangerous growing dependency on personal loans, should set off alarm bells. It’ s more critical than ever before for South Africans to manage their finances as responsibly as possible to avoid further hardship."

Caption: Lynette Nicholson, research manager at Old Mutual