Stretching your money further in uncertain times

When South Africa emerges from lockdown, consumers will face a very different economic reality to what they were used to just over a month ago.

The shutdown came soon after the country fell into a recession. Not long after that Moody’s downgraded South Africa to sub-investment status – the last of the major ratings agencies to do so.

“What’s happened to the economy in just over a month is unprecedented. It’s a perfect storm,” says Benay Sager, Chief Operating Officer at DebtBusters, the country’s leading and largest debt counsellor.

He says that while consumers can’t do anything about the broader economy, they can use some of the remaining time in lockdown to take control of their own finances.

“If you are feeling a bit uneasy, you’re not alone. Current situation feels like an extended December period where you have to go almost eight weeks between pay cheques. For some consumers, this period might be even longer. It is important to take a few practical steps to help you stretch your money further.”

Listen to the interview here with COO Benay Sager and Aden Thomas:

Sager suggests the following to stretch your money further.

  • Count your cents and supplement your (reduced) income: Now is the time to look for any spare money that may be stashed away. Sit with your family and make sure to account for everything in all your bank accounts, cash you may have at home, prepaid phone accounts etcetera. This may not amount to much, but there is also relief in the form of the unemployment insurance fund or UIF. You can claim income from UIF if you or your company have been contributing. Your employer can also claim from the Temporary Employer/ Employee Relief Scheme if they are not an essential services provider and have lost revenue due to lockdown. The are limits on what can be claimed, but every little bit helps.
  • Stop the impulse buy(s): You may have seen others at the supermarket hoarding toilet paper or some other necessity. South Africa has a strong food supply chain and almost all the food is produced locally so there is very little risk of shops running out of necessities. Instead of spending R50 on toilet paper, because others are buying it and you may not immediately need it, save the money or spend it on essential items you need now.
  • Look for the bargains: There are lots of bargains available as businesses, both local and international, are trying to protect market share or just get through the crisis. For example, some companies deliver food or essential items for free. Do your research and find these bargains.
  • Review your budget: Before the lockdown you may have made some assumptions that have now changed. For example, you might have been expecting a salary increase or a bonus which you will now not be receiving.

By reviewing your monthly income and expenditure you’ll have a better idea of where you stand financially.

It may also give you an early warning that you may be getting into trouble. If your income assumptions no longer hold true, but your debt obligations still need to be met you will need to make some decisions. You may be able to cut some expenditure so you can pay our debts, apply for relief such as a payment holiday or discuss options with your creditors.

For more information on using a budget to get out of debt click here.

  • Get help if you need it: Many consumers are reluctant to seek help because they feel embarrassed or think they’ll be stigmatised if they undergo debt counselling.

“The earlier you realise that you might have a problem and do something about it, the better you chances of getting back on a sound financial footing,” says Sager.

South Africa has a world-class, regulated debt counselling sector and it is working well. The number of debt-clearance certificates issued to DebtBusters’ clients grew by 69% per year between 2015 and 2019 – almost a tenfold increase in a four-year span..

If you’re not sure about your situation, this online survey will give you an indication whether you should seek help

Under-pressure consumers should seek help now

There is no way to sugar-coat South Africa’s downgrade to sub-investment status, which came amidst a national lockdown to counter Covid-19.

Benay Sager, Chief Operating Officer at DebtBusters, says the lockdown is severely impacting economic activity, which will mean significantly less tax revenue for government. On top of this, the downgrade will make it more difficult and expensive for government to borrow money. The consequences will impact everyone.

He says the two bitter pills the country is being forced to swallow will mean more hardship for consumers but might also persuade government to now implement the structural economic reforms required to reduce the budget deficit.

He warns, though, that no matter how quickly or decisively government acts it will not provide any short-term relief for consumers. Things will get worse as the full impact of the lockdown subsequent measures and the downgrade are felt.

Banks too will be under pressure. It will be harder for them to borrow money and consequently they are likely to implement stricter lending criteria, which will mean consumers will also find it more difficult to borrow.

This could be problematic for those consumers who have been borrowing money to supplement their incomes.

DebtBusters’ most recent quarterly debt report, found that South Africans’ net income declined markedly in real terms since 2015 and that many consumers are making up the shortfall by large-scale borrowing. In four years, average debt levels increased 13% more than average income levels.

“The reality now is that many of these consumers will no longer qualify for another loan.”

The payment holidays some financial institutions are introducing to cushion consumers from the impact of the Covid-19 lockdown may postpone the inevitable, but not indefinitely, says Sager.

“We’d urge people to reassess their spending now and look at where and how they can make savings. If they’re already struggling to meet their monthly obligations, this situation will only get worse and they should seek help from a credible debt counsellor before this happens.”

He says that while things will be very tough for the next few years, an unintended consequence of the downgrade may be that it makes South African consumers less reliant on borrowing money to sustain their lifestyles. If that happens there may be some silver lining.