In a move to curb inflation and maintain economic stability, the world has been thrust into a significant interest rate increase cycle in recent years.

In South Africa, the most recent interest rate increase of 25 basis points in January this year escalated the repo rate to 7.25% and the prime lending rate to 10.75%. Economists warn that we’re likely to see another interest rate increase before the end of this month.

According to Bertie Nel, Head of Financial Planning and Advice at Momentum, while interest rate increases may benefit investors, it has a dire impact on many South African households.

“Interest rate increases also increase the cost of borrowing for consumers, making it more difficult for them to repay debt. These increases have a substantial and tangible effect on the average South African’s pocket, with credit card debt being a primary burden and a cause for concern in a country laden with debt,” Nel says.

Financial Sector Outlook study by the Financial Sector Conduct Authority revealed that over half of South Africa’s credit-active consumers are over-indebted. The South African Reserve Bank (SARB) stated that South Africans spend approximately 75% of their salaries on debt repayments.

Nel says interest rate increases also lead to consumers having less money to put towards saving for their financial goals. The 2022 Momentum UNISA Household Financial Wellness Index found that in 2021, households experienced rising consumer price inflation, interest rate increases and high unemployment, which made achieving financial goals more challenging.

He says numerous other factors are also putting pressure on consumers in South Africa, including a cost-of-living crisis and looming global recession, which can have even more dire effects on household finances of everyday South Africans.

“While all these factors make it more difficult to put money away, we should not underestimate the importance and value of saving money, especially when even tougher times lie ahead. “Making smart money moves is now more important than ever, while saving is a vital tool on your journey to financial success, “Nel advises.

“With the help of a financial adviser, you can rethink and redesign your financial future. Financial advisers understand your financial goals and can develop financial plans to align with your unique financial circumstances. They can also help you bulk up your savings kitty – whether you are saving for emergencies, short-, medium-, or long-term goals,” he says.

“Staying informed and getting the right advice – from an accredited financial adviser – can help you make sound decisions, aiding you on your journey to financial success, even in challenging times,” Nel concludes.

Article credit Households must adapt their finances in the face of rising interest rates (