Read the BusinessTech article here: The one group of South Africans facing financial disaster – BusinessTech

South Africa’s youth are grappling with deepening financial challenges, including crushing unemployment, limited asset ownership and mounting debt levels. Eighty20, South Africa’s leading consumer analytics and research company analyses those aged 24 and younger, who make up 44.5% of the population.  With nearly 30-million people under the age of 24, South Africa’s economic future hinges on whether this generation can break the cycle of financial exclusion that currently defines their prospects.

Eighty20’s National Segmentation reveals that of the 6.7 million youth aged 18-24, only one million are credit active. Yet among these credit users, nearly half have defaulted on their loans. With an average monthly income of R3,400 (less than half the national average of R7,000) and a youth unemployment rate of 62.4% according to Stats SA, financial strain is widespread in this age group.

The Debt Burden

Among the million credit-active youth, retail credit dominates, with 85% holding store accounts. Personal unsecured loans follow at 17%, while 9% have credit cards. Youth represent approximately 4% of South Africa’s total outstanding debt, carrying R10 billion in combined obligations. However, their credit performance is worse than the national average, with R1.1 billion – or 11% of their total debt – currently overdue. This elevated delinquency rate signals particular financial stress within this age segment.

MRF’s Marketing All Product Survey (MAPS) of 20,000 South Africans reveals that the youth are more concerned about privacy when it comes to credit. They over-indexed on preferring that others do not know they are taking a personal loan and would prefer to take the loan from a financial institution rather than friends or family.

Breaking into Credit: ‘Thin File’ Challenge

South Africa faces a stark financial inclusion divide among young adults. While those under 24 represent approximately 20% of new credit market entrants over the past three months – a few hundred thousand individuals – this figure masks a deeper problem: many young South Africans never enter the formal credit market at all.

This exclusion creates two distinct groups. Those who successfully access credit can join the formal financial system and participate in the economy. Meanwhile, many remain locked out – classified as “thin file” clients due to their lack of credit history. Without access to formal credit, these young South Africans are excluded from significant economic opportunities.

❝ A credit score serves as the gateway not only to lending products and favourable terms, but to essential services across multiple sectors.

A credit score serves as the gateway not only to lending products and favourable terms, but to essential services across multiple sectors. A healthy credit profile enables access to cell phone contracts, rental agreements, and can even influence employment opportunities. Expanding credit access among young adults represents both individual economic empowerment and broader formal economy development.

A further challenge, however, lies in the performance of those with credit: approximately half of young borrowers default early in their credit journey, with most maintaining high-risk credit scores. This pattern underscores the urgent need for enhanced financial education, and for those in distress to get into debt counselling early.

The Side Hustle Economy: Making ends meet

Youth unemployment is at crisis levels, with fewer young people in formal employment now than in 2008. Harambee, an NGO focused on youth employment solutions, reports in their quarterly Breaking Barriers analysis that of the one million young people entering South Africa’s labour market annually, only 40% find work in the short to medium term, 30% find intermittent employment but remain mostly unemployed or outside education and training, 20% want to work but never find opportunities, and 10% stop seeking work altogether.

In addition, for those who have employment, side hustles have become essential to make ends meet. BrandMapp, a survey of South Africans in households earning over R10,000 monthly shows a notable shift: in 2021, 55% reported having no side activities that create extra income, but this dropped to 49% in their most recent survey. The survey asks for details on these activities, and the percentage of people who say they are running small businesses as a side hustle, or taking second jobs in their primary field has grown by 50%.

This trend mirrors international patterns, with about 50% of millennials and 46% of Gen Z reporting side hustles.

The nature of these side hustles vary by demographic. BrandMapp data shows that “home industry” activities are more common among black married couples, while temporary and shift work in restaurants and bars is more prevalent among white South Africans.

According to a recent IOL article, popular side hustles among South African youth include freelancing in areas like graphic design, writing, and web development, e-commerce and drop shipping ventures, ride-sharing and delivery services, content creation and monetization, and online tutoring and teaching services.

Thriving ahead 

The intersection of limited formal employment, growing debt burdens, and the rise of alternative income sources creates both challenges and opportunities for South African youth.

“In the face of considerable financial headwinds, many young people are turning to side hustles as a means of creating opportunity in a tough economy, but with the right support structures and a focus on keeping their credit history clean, this generation has the potential to drive long-term, inclusive growth,” concludes Eighty20.

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