we buy things we don’t need with money we don’t have to impress people we don’t like”. This holds particularly true for financially stressed South African consumers.
A famous quote by Dave Ramsey states “we buy things we don’t need with money we don’t have to impress people we don’t like”. This holds particularly true for financially stressed South African consumers. The recently released FinScope South Africa 2017 results by FinMark Trust show that year on year, there is an increase in the number of financially stressed adults, 38% of adult borrowers in South Africa are showing signs of stress and are likely to be over indebted.
Digging below the surface of the financially stressed, the majority (67%) is from those earning between R10 000 and R19 999 and (67%) SASSA grant recipients. To better understand the quote by Dave Ramsey, we will need to unpack it a bit further. The first part is that “we buy things”. #BlackFriday is yet another example where the South African consumer masses wake up before dawn to line up in front of retail doors to scramble and out-maneuver other customers for the limited number of gadgets, clothes and household equipment on offer at discounted prices. The perception is that they are taking advantage of the low prices, but are these items really that cheap?
This is a question better suited to the retailers! The second part of the statement is “we don’t need”. Perhaps it may be more troublesome since this is a personal judgement or value a person attaches to something. However, the FinScope results show that of the 49% of South African borrowers, the majority, borrow for consumption – 32% on food and 17% on clothes. What is more concerning for the poorer segment (10 million earning less than R1500 per month) is that food and clothes make up of 51% and 14% of the basket respectively. Imagine scenes from shopping malls with people pulling trolleys made up of groceries and clothes to look good for December.
It is a pity that items and assets considered more valuable such as property, education policies and life cover do not have a #BlackFriday special. However, on the good side, ‘funeral cover’ is also not on special. Why does this matter? Funeral cover is the ‘go-to insurance product’ across the South African landscape with 52% of adults covered for that dreaded d-day. For the past few years, non-funeral insurance has stagnated at 22%. The third part of the quote is “money we don’t have”. This is a major one. FinScope South Africa 2017 shows that based on the adult population 16 years and older (represented by 38.8 million people in South Africa), the average income is R4 625 per month, obviously skewed by the high income earners. Be that as it may, average expenditure (including savings) hovers at R4 665 per month.
This means that people are living beyond their means. Even for those who have money and could afford the #BlackFriday specials, what FinScope shows is that they are likely carrying loads of cash to make the payment; a clear security risk. FinScope reports that about 77% of adults have bank accounts, yet 30% of them deal in cash for all their transactions. This suggests that these ‘mailbox’ accounts (defined as accounts where ALL money is withdrawn as soon as it’s deposited) are not effectively being used. The last part of the quote “to impress people we don’t like” is a debatable issue. Social connectedness is an important part of society.
An example from the FinScope South Africa 2017 results shows that 10% of adults save through stokvels – their very existence revolves around social gatherings – ideally of people who like each other. What is surprising is that even the affluent earning more than R20 000 per month also save through stokvels (12%). What would be interesting is if research was done on the financial status of consumers the day before #BlackFriday, and the day after! How dire would the change be, and what would they have spent their money on?
FinMark Trust Tel: 011 315-9197 firstname.lastname@example.org
FinScope is an evidenced based research tool developed by FinMark Trust and aims at filling the information gap in financial markets within most developing countries. Its purpose is to establish credible benchmarks on the use of, and access to, financial services. It is designed to highlight opportunities for innovation in products and delivery. FinScope Consumer Surveys have been completed in 30 countries. This allows for cross-country comparison and sharing of findings which are key in assisting on-going growth and strengthening the development of financial markets.