Many young South Africans are increasingly struggling to cover the rising costs of basic living expenses, some battling month-to-month to make ends meet.
The cost of rent (or bond payments), food, bills, medical aid, cars and related insurance, personal insurance, cellphone contracts, and student loans all add up very quickly. Nevermind the odd extravagance.
But life happens. Unexpected costs crop up all the time, like if your fridge deciding it can’t be chill anymore, or your pet making this the month it needs to go to the vet. These inevitabilities end up dipping into the overdraft facility or credit card.
“From personal experience, getting by with rent is all right, but when things go wrong – for example when a geyser bursts or car parts break – those things put you in quite the scrap, and it means you start behind the next month,” says Muhammed Hoosan, a 23-year-old teacher from Johannesburg.
And that’s just taking basic living expenses and the occasional “life happens” emergency expenses into account. It’s seemingly impossible to get on the property ladder in your 20s or 30’s in South Africa.
All the while financial advisors will tell you that you should, ideally, be saving for retirement from your 20s if you want any chance of financial freedom when you’re older.
Millennials doing things differently…
What happened to putting at least one-third of your monthly income into savings, as many Baby Boomers recommend? These days the 50/30/20 rule is more popular, when achievable.
This budgeting method advises that you should allocate half of your monthly income to living expenses, 30% on entertainment, dining out and other lifestyle expenses, and the final 20% should be put towards debt payments and saving for the future.
According to a report by Merrill Edge, however, this is not how all millennials are choosing to save, with many less concerned with saving for retirement than they are with saving to live the lifestyle they want now.
“Young adults tell us they are willing to do whatever it takes to achieve freedom and flexibility, even if it means working for the rest of their lives,” says Aron Levine, Head of Merrill Edge.
They are, according to the report, more likely to spend money on travel, dining, and fitness than on saving for their financial future.
37-years-old, moving in with mom…
In South Africa, financial freedom might seem like a distant, and perhaps even foreign, idea with living expenses and salaries as they are. This is driving many millennials either back to the family home or into increased debt if they aren’t able to seek other financial assistance.
“I’m 37. I basically moved back in with my mom because rent is so high and it saves us both a load of money,” says Cindy de Bruyn, a graphic designer based in Wellington.
Jonathan Hurvitz, Financial Director at Teljoy, weighs in: “The situation needs to be considered as a matter of urgency and practical solutions need to be found – now! Above and beyond the usual life expenses, 2018 has seen a massive rise in the cost of petrol, while VAT increased to 15% in April.
It sounds like just two things, but both of these have an impact on every single South African business, and therefore impact the cost of absolutely everything we consume. And yet incomes are not rising adequately to keep up with these consistently rising costs.
“This is one of the reasons that we have created a rent-to-own model. Most people, especially the young, cannot afford to buy brand new furniture and appliances. This is a solution that enables them to afford necessary basic items without having to get into debt.”
Bad news for salary hikes…
According to Hurvitz, it is essential to create product models that give consumers greater opportunities for access.
“Companies offering services need to get creative. We need solutions to make products more widely available. There is little point in having a product available for sale if only a small percentage of the population can afford to buy it,” says Hurvitz.
Salaries for South African employees are expected to have risen on average by 3% this year, according to the 2018 Compensation Best Practices Report by American company PayScale, which surveyed a number of South African companies. The vast majority of organisations surveyed, about 84%, indicated that they plan to give base pay increases this year. However, salary increases rarely keep pace with inflation (which currently sits at 4.4%).
For consumers – millennial or otherwise – wanting to avoid falling (further) into a debt spiral, now is the time for some very tough decisions.