A millennial’s take on the downgrade: Let the Hunger Games begin

WHEN news broke that Standard & Poor’s (S&P) had downgraded South Africa’s credit rating to junk status, I was listening to the reports on the car radio.
Unwilling to move, in case I missed out on any other important information that would transpire in the seconds I was out of earshot of the radio, I went on to browse my twitter feed to find out what analysts had to say about it.Comparisons with Brazil and Colombia, projections of a recovery after a decade and possible repercussions for the already under-performing economy, all expressed in 140 characters or less.

That afternoon the consequences of political decisions were solidified in the economy’s records and we have foreign exchange graphs to prove it.

READ: INFOGRAPHIC: How the rand lost its way

Although the markets had already priced in the downgrade and reacted mildly, some experts even say better than expected, my mind was racing towards 10 years from now.

It’s not about what happens in the next six months or even the next two years. Whatever long-term plans my peers and I had, would have to change.

A flashback to first year economics where we learnt about the downsizing of companies following the global financial crisis didn’t do much to uplift my mood either.

I was particularly concerned over my parents’ pension. They’re slowly approaching retirement (they’re not much older than Malusi Gigaba either, so much for a youthful Cabinet) and I asked my dad if he was worried about what the downgrade would mean for his returns. He responded with a curt “Yes, but what can we do?”

Unsatisfied with that answer, I asked an economist what the impact of a downgrade might be on one’s retirement annuity. I was told that depending on how the fund is structured, if investors pull out of bonds and equities then the value of the annuity will decline.

That was possibly academic speak for: “Make sure your money is in different pots so if one pot runs empty at least the others will have something left.”

By the time Fitch made its call, I had already gone through the most of the five stages of grieving. Denial, anger, bargaining, depression and I was gradually accepting it, I started re-strategising my financial plan.

READ: Rand heading for R14/$ on second downgrade

Of the material I had been exposed to in the past week, I found these two tips most useful:

1. Don’t get more debt

Unfortunately with the increasing cost of borrowing, my friends and I will have to delay buying a house and continue renting for possibly the next seven years (that’s as long as a primary school education).

One of my friends had a theory that if some sellers become “desperate” enough they might drop the price of their property. So a house that was going for R1m, would probably go for R700 000. Here’s to holding out for someone else’s misery.

I listened to a podcast by investment expert Simon Brown, he recommended that if you are going to incur more debt, through purchasing a house or a car for example, then simply budget 30% less for it. I found that to be a useful option too.

I also considered increasing the installments on my car payment, that way if I pay it off faster I could possibly dodge the brunt of higher rates. 

2. Save for emergencies instead of nice things

Generally it’s recommended one has an emergency fund available worth six months’ salary. This is because unforeseen events happen, like an accident that renders you unable to work, or retrenchment. So saving up for emergencies has moved substantially higher on my list of priorities.

I’ll also have to re-prioritise my spending when it comes to social activities and other areas. For example, instead of buying brand new books, one should consider buying second-hand ones. Or if you’re really desperate to read a book, try the library – they still exist.

Also, besides emergencies, it’s best to make sure you’re somewhat “comfortable” to weather the increasing cost of living. The Reserve Bank won’t be implementing a rate cut soon and will be keeping a close watch on the rand’s strength, which in turn has a bearing on inflation.

I’m not sure if the recent “blow” to the rand might change any international travel plans, it was not too long ago when it was trading around R13/$. But there are views that it could approach R14/$. The rand dipped below R16/$ following Nenegate, so things could still get worse.

As we hold our breath on the inflation outlook, there’s also a possible petrol price hike to consider. Latest reports indicate it could go up 77c/l.

At the petrol station, I savour what feels like it could be the last time I’ll experience a 24c/l relief. The petrol tank meter reads R100, R200, R300 … I give my card to the petrol attendant and mumble to myself: “Let the Hunger Games begin.”

Lameez Omarjee

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