The latest statistics on people applying for debt counselling released by DebtBusters paint an alarming picture:
“While the average new applicant age has been consistent, the share of applicants who are 45 or older has increased from 20% to 27% over the past six years, indicating financial stress is becoming more prevalent in this age category.”
The harsh reality is that the debt-to-disposable income ratio clearly indicates that people are living beyond their means. In the age group 45 to 54, debt in relation to disposable income amounts to 144%, while the same figure for those over 55 is 141%. This is concerning when compared to the average figure of 116% for all age groups.
Also bear in mind that these figures reflect those who seek to address the issue. The overall picture may be worse.
In a recent Moonstone article it was pointed out that, ironically, it was the series of interest rate reductions starting in the second quarter of 2020 that has contributed to the pressure many consumers are currently experiencing. These rate cuts resulted in associated decreases in the average interest charged for mortgage bonds and vehicle finance. The attractive rates encouraged people, particularly younger consumers, to buy vehicles and houses.
When interest rates began to rise again in late 2021, these consumers started to feel the increased burden of servicing asset-linked debt. The average interest rate for a bond went from 8.3% in the fourth quarter of 2020 to 10.8% in the fourth quarter of 2022.
What happened to financial advice?
In a related Moonstone article, a survey conducted by Sanlam on people’s attitudes to financial advice indicated that most South Africans wish they had made better financial decisions when they were younger, by growing their money instead of spending it.
The results also show that only 32.7% of the 5 205 people surveyed have a financial adviser, and 41.1% of those who have an adviser see him or her once a year.
Receiving help from a financial adviser is notably lacking among South Africans aged from 18 to 49. Their main “go-to” for “financial advice” is “online” – although the survey did not disclose whether this could be, say, the websites of reputable financial institutions or “influencers” on TikTok.
The second-biggest source of advice is “family.” “Friends” and “other” are the third- and fourth-biggest sources, respectively.
Financial advisers only become a more important source of advice (28.2%) than family among South Africans aged 40 to 44. They are the primary source of advice (32.9%) for those aged 45 to 49.
The role of financial advisers continues to increase as people get older: 43.7% among those aged 50 to 54; 54.3% among those aged 55 to 59; 55.2% among those aged 60 to 64; and 60% for those who are 65-plus.
No doubt, this reflects the important role of long-term relationships built over years. Unfortunately, when reality bites in the form of financial pressure, a different picture emerges.
Reality bites
In a discussion on the topic, a broker friend noted the following:
Just to share some thoughts. I find some retiring folk with insufficient retirement capital will not drop their standard of living and thus draw an unsustainable drawdown percent.
They have three beliefs:
- Something will happen. No idea what, but a naïve belief that they cannot end up on the street and often assuming that they can live in a cottage that can be built on the kids’ property, failing which, live with the kids, as the grandchildren have left home.
- I will die before my income starts declining. When I point out that the wife normally lives longer, I get a warning look. Don’t raise that issue.
- The kids will subsidise my shortfalls. What really grates me is that they don’t think of the high education costs that the kids have to fund. In fact, it does not seem to bother some. I know of one family who are building a large separate investment to cater for their parents’ inevitable problem, but the pensioners are not committed to reducing [their] standard of living. It is so hard on those who are squeezed in this sandwich of providing for parents and children. The other problem is that these parents have to increase their life cover to cater for both their children and parents.
We have a crisis of insufficient retirement capital and an absence of a social welfare net that will sustain rental and food. Over the next decade, I predict we will see the casualties of this and anger amongst the children who will have their own retirement contributions reduced as they have to fund the financial shortfalls of their parents.
I work in the retirement market, and it shows that I see too much idiocy and some selfishness.
A closing thought: rehabilitation after debt counselling takes between four and five years. The DebtBusters survey indicates that many older people will be retiring while still trying to get their debt under control. Some of those with retirement provision may be able to use it to escape the debt trap, but will have to get by on far less than they expected.
Will they adjust their standard of living, or keep experiencing that there is too much month at the end of the money?
“Who Ya Gonna Call?” DebtBusters!
I can only concur but as an 80 year old circumstances are different. Given that we have paid tax for decades and with very little opportunity for supplementary income, the pressures are compounded. Regrettably there is no relief from Govt on income tax. Why not a cut off age at 75years of age.
Medical, Food and fuel to name but a few expenses always seem to rise above inflation. etc.