Households see some relief, but financial resilience remains fragile, Altron FinTech Index shows

South African households experienced modest financial relief in the first half of 2025, but their overall financial resilience remains under severe strain, according to the latest Altron FinTech Household Resilience Index (AFHRI).

The index, released on Wednesday, shows a year-on-year improvement of 2.3% in the second quarter, supported largely by May’s interest rate cut and stabilising employment trends.

However, despite this short-term uptick, the long-term picture is far less encouraging.

Since the beginning of the South African Reserve Bank’s (Sarb) interest rate hiking cycle in late 2021, household financial resilience has improved by an annual average of just 0.2%, effectively stagnating.

The AFHRI report underscores how deeply high borrowing costs have eroded household finances. With population growth averaging 1.4% annually since 2014, the index shows that the real financial position of households has been declining for years.

A temporary turning point came when the Sarb cut the prime lending rate to 10.75% in May, a move that boosted the AFHRI for the second quarter as debt-servicing pressures eased slightly.

The index improved to 113.7 on a four-quarter average, up from 113.4 in the first quarter.

Economist Dr Roelof Botha, who compiles the index, said the link between interest rates and household resilience is unmistakable.

“The unduly restrictive monetary policy (in the absence of any sign of demand inflation) actually represents a self-inflicted suppression of economic activity. This has resulted in two successive years of GDP growth below 1%.”  

Forecasts from Unisa’s Bureau for Market Research suggest that GDP growth for 2025 will range between 0% and 1.3%, prompting calls for further rate cuts to unlock employment creation.

One of the most striking factors influencing the AFHRI is the impact of South Africa’s new Two-Pot retirement system, introduced in September 2024. The system allows limited pre-retirement access to a savings pot, subject to marginal income tax.

According to data, these withdrawals have surged dramatically, with 35% year-on-year increase in lump-sum withdrawals in the fourth quarter of 2024 and a 40% increase in the first quarter of 2025.

The South African Revenue Service had initially estimated an extra R5 billion in tax revenue from early withdrawals, but collections ballooned to R13bn by March 2025.

However, the index warned that this inflow has artificially inflated household income figures.

“In the absence of these unnatural increases in household incomes, the average annual improvement in the AFHRI since the start of the interest rate hiking cycle would have been even closer to zero.”

Long-term insurance surrenders rose 4.9% year-on-year, signalling continued financial stress. House price growth remained muted, with the BetterBond index declining 3.1% year-on-year.

Johan Gellatly, Altron FinTech managing director, said the latest results highlight the difficult financial landscape households continue to navigate.

“While the year-on-year improvement is encouraging, the reality remains sobering – household financial resilience has improved by barely 0.2% annually since the interest-rate-hiking cycle began,” he said.

“The impact of the Two-Pot system, which generated R13bn in tax revenue, has artificially inflated household incomes and masked what would have been an even weaker recovery. The May rate cut to 10.75% has provided welcome relief, as shown by 15 of our 20 indicators showing positive trends, but this is merely a first step.”

Gellatly added that meaningful economic recovery requires more aggressive monetary policy easing, especially given weak GDP prospects.

“With GDP growth forecast to remain below 1.3% for 2025, further aggressive monetary policy easing is essential to restore genuine household financial stability and create the conditions for meaningful employment growth.”

BUSINESS REPORT