Prepare for the Covid credit bubble about to burst. Consumers are over-indebted while still unable to earn a steady income. Our reliance on credit in a pandemic-fueled world will be our downfall if we don’t get it under control. This stern warning comes from Momentum financial adviser Janine Horn, who says South Africans are already preparing for a wide range of price hikes after the budget speech, as taxes, inflation, interest rates and rising food prices will push the cost of living to unmanageable heights. While we anticipate these inevitable results every year, this year is…
Prepare for the Covid credit bubble about to burst. Consumers are over-indebted while still unable to earn a steady income. Our reliance on credit in a pandemic-fueled world will be our downfall if we don’t get it under control.
This stern warning comes from Momentum financial adviser Janine Horn, who says South Africans are already preparing for a wide range of price hikes after the budget speech, as taxes, inflation, interest rates and rising food prices will push the cost of living to unmanageable heights.
While we anticipate these inevitable results every year, this year is different because something else is looming in our bank accounts: rampant inflationary growth. Covid-19 appeared to create a credit bubble as our month-to-month relationship with interest rates and inflation was disrupted.
“We lived in limbo for a while before prices suddenly skyrocketed as demand for goods exceeded the capacity of the global supply chain. The Covid-19 credit bubble is about to burst and we are now faced with the reality of rampant inflationary growth. ”
ALSO READ: SA consumers in unsecured debt trap, no real income increase since 2016
How did we create the Covid credit bubble?
When prices rise, inflation also rises. As it becomes more difficult to maintain a lifestyle, consumers are diving into their credit cards, but this only exacerbates the problem, as one of the methods of curbing inflation is to make credit more expensive.
Horn says we’re now in a vicious circle of costs and we need to face reality before it’s too late.
“Consumers were running out of cash at the height of the pandemic. Demand for goods fell to record lows and with less money to spend, it was in the government’s best interest to keep inflation and interest rates low for an extended period of time.
“This meant that credit was relatively cheap and given the fluctuating income levels consumers were experiencing, credit was the only way forward.”
She says once people used credit to pull themselves out of the Covid-19 hole, markets started to find their way back to normal and while we’re not quite there yet, it seems markets are rebounding faster than many people’s wealth. to earn an income.
“If we now start raising the price of credit by adjusting inflation levels, which is unavoidable at the moment, the Covid-19 credit bubble will burst and consumers will find themselves in financial trouble. The same is happening all over the world.”
Horn says consumers now feel so financially vulnerable, insecure and vulnerable that any small market change, such as interest rate hikes, will negatively impact personal finances in this country.
“We are facing record levels of unemployment, a stagnant economy focused on recovery and the price of fuel and therefore food, while our income levels remain at risk. Now we have to pay more on our debts, including our credit cards, homes, cars, businesses and everything in between that we borrowed money for.”
ALSO READ: Unemployment remains a major obstacle to financial freedom – study
Can we escape the Covid credit bubble?
However, she says it is not a complete dead end for consumers and that for many South Africans who feel trapped, there are still avenues to explore. For example, consumers may consider a debt consolidation loan with lower monthly installments and interest rates.
“Although you assume you have no way out, depending on their situation, there are many ways to travel. Therefore, people should consider talking to a financial advisor who can help them create a robust and achievable financial plan based on current circumstances and realities.”