South Africans are living hand-to-mouth
Due to the drastic changes in the economy over the past two years, South African consumers’ financial realities and concerns have also changed. For many, getting by has become a priority, while investments and building wealth have taken a back seat.
In late 2023 we undertook our third annual 1Life Generational Wealth Survey, and the most notable stat is that over 57% of respondents feel that they are just surviving, with continuous anxiety over meeting their monthly expenses, which is testament to the increased cost of living that is burdening South Africans.
Top of the list is household expenses – with over 51% of respondents having to worry about how they will meet their monthly household expenses such as rent, home loans, rates, and utilities, followed by whether or not they will be able to adequately support their families, the survey reveals. This comes as no surprise given that the Monetary Policy Committee has increased the interest rate eleven times since November 2021, and the repo rate reaching a 14-year high of 8.25%. The survey further uncovers that 31% of respondents have started a side hustle or second job to make ends meet, however 73% of them still have to use their savings and investments to get by.
“The reality is that while the situation may already be at its worst for many consumers, the economic situation may not improve anytime soon. With job cuts and the increase in inflation in the past two years, many families are living hand-to-mouth, with no means to save for emergencies, let alone build generational wealth for their families,” says Brina Biggs, Senior Manager at 1Life Insurance.
As the economic situation worsens, so does the pressure to be financially secure. In fact, 87% of the survey respondents are expected to create generational wealth to secure their families’ financial future. Similarly, 84% see the significance of leaving generational wealth for their loved ones.
Unfortunately, though, less than 50% have been able to keep all their policies in the past year. This means that should the breadwinner pass, families are left financially vulnerable. For many families, insurance is there to break the cycle of poverty and move a family into a cycle of generational wealth and therefore, having those important conversations with your insurer or broker to find the best way to keep your cover in place is key.
“While many may feel that the lack of financial insurance is justifiable under these circumstances, the reality is that this is one of the building blocks to creating financial security and future wealth for your family. It should, therefore, be a key priority in one’s monthly expenses, but understandably, putting food on the table will always take top priority,” adds Biggs.
Talking about putting food on the table – the research shows that 51% of respondents have had to take out a microloan or an advance on their salary (monthly) to do just this, as well as cover transport costs, and other living expenses.
“The reality is that while taking out a loan may offer short-term relief from financial stress, the act itself has a snowball effect on earnings – making one poorer, as they often cannot recoup the money each month that they took from the month before. At this point, the solution is to start planning on how this cycle can be stopped before one finds themselves in debt review, or worse, bankruptcy,” says Biggs.
When looking at the respondents’ perception of wealth-building methods, the survey revealed that most respondents (22%) associate wealth with assets like property inherited from relatives/parents. While this is correct, there are various other methods available to build wealth, and it is encouraging to note that 89% of respondents think Life Cover is one of them. This outcome indicates significant improvement in the understanding of what wealth generation means and how it can be achieved.
“We cannot deny that the current economic reality has been harsh on the pocket, but now is not the time for consumers to let their guard down. In fact, one should be seeking financial education, and speaking to their financial advisor or insurer, to determine the best way to financially navigate these difficult times,” Biggs continues.
“This situation is not unique to one person, so don’t feel alone! With so many South African’s already cash strapped, one needs to talk about these things honestly, and get your household to understand where you are financially. This way, families can work as a team to hold fast as we hope for rates to fall and the cost of living to come down later in 2024,” concludes Biggs.
