“These made a significant impact on the ability of South African’s to adequately address their debt.”
1. Fuel under Fire
“Looking back at 2014, we saw the price of fuel rise to an all-time high of over R14 per litre. Placing major strain on the man on the street and businesses alike,” Olivier says.
“Luckily, the price came down slightly in the fourth quarter, but the experience has taught us that we need to plan for the unpredictability of fuel prices, especially when covering large distances to work.”
2. Banking Blunders
Olivier says that the almost-crash of African Bank Investments Limited (Abil), followed by similarly disastrous results with other organisations in the industry, was another event that majorly impacted consumers and their faith in the banking system.
“This left consumers disillusioned and mistrusting of lenders. While irresponsible practices of many financial institutions have ultimately affected the credit ratings of all banks, resulting in less favourable lending terms.”
“What this means for the man on the street going forward is that those who have already acquired debt will find it harder to meet their payment obligations. Plus access to new loans will become increasingly stringent,” he explains.
3. Rising Repos
Yet another important lesson for South Africans from 2014 was the two repo rate increases throughout the year.
“This affected consumer debt and bond repayments directly, and took a huge chunk out of many people’s already limited disposable income. This saw a sharp rise in the number of people looking to apply for loans to absorb this rise in repayment amounts and the cost of living.”
Olivier advises that consumers bear this in mind as we may see a repeat of this in 2015. Therefore extra budget will need to be provisioned by those affected.
4. Income Issues
2014 also saw an increase in the unemployment rate. According to Olivier this indicates that more people have been unable to meet their financial obligations due to a major loss of income. Many are relying on support from the State which is putting strain on resources.
“As the rate of unemployment in South Africa steadily rises, the GDP is also affected by a lack of growth,” says Olivier. “Strikes in the mining sector also had a huge effect on unemployment rates, severely diminishing workers’ ability to service their debt.”
Olivier explains that these occurrences will have a knock-on effect on a variety of other sectors. This will likely negatively impact the financial wellbeing of South Africans and the opportunities available to them in the New Year. “Again, planning ahead and making provisions for a volatile market is crucial to avoid falling into a downward debt spiral.”
5. Downgrading Damper
South Africa’s high levels of indebtedness, along with other factors such as consumer affordability and rising interest rates, saw the downgrading of the country’s credit rating in 2014 by Moody’s Investors Service (Moody’s) and other major ratings agencies.
“This means that it will be more difficult to attract foreign investment and business inflows. Which will likely lead to further weakening of the Rand,” says Olivier. “This type of negative development ultimately affects the consumer going forward as premiums on debt rise and the cost of borrowing goes up as a result, which many will have to allocate extra resources towards.”
Take these into consideration for 2015
According to Olivier, consumers should take these scenarios into consideration when planning finances for 2015, and apply the lessons learned accordingly.
“One key point to keep in mind for 2015 is that change is the only constant, and the fact is that unforeseen things happen,” he says. “Therefore it’s important to start saving as soon as possible and build up a solid reserve fund that will assist you if you need it, which you are likely to.”
Olivier advises consumers to plan for the year ahead as far in advance as possible
Factor in possible increases in interest rates. “This is also an important time to plan your career goals and actions, to determine what possibilities exist to increase your income,” says Olivier. “At the end of the day, each of us is entirely responsible for our own financial wellbeing. We need to ensure we’re educated on how to make the best of our resources in an unsteady economic climate.”