CAPE TOWN - Debt levels in South Africa remain horrifically high. This places grave pressure on retirement savings, says Chief Executive Officer of X10 Investments, Steven Nathan. We tap into the volatile debt environment and explore how consumers can manage their debt.
According to Nathan, the current strong economic headwinds and continued political uncertainty places South Africans in a tight bubble. They are faced with the mounting concern of survival and confronted by growing inflation.
Is there a way that people can manage this?
There is a way in which South African’s can shake the strain of financial stress, says Nathan.
“South African’s can address the issue by being careful about their spending. This means distinguishing between necessities and luxury expenses”, he says.
He adds that although a lot of people are not in the financial state to cut down on luxury spending as they live below the breadline, these people should still try to stay afloat the challenges that our country is facing.
Sadly, it is majority of low-income people who do not see a large chunk of their salaries, says Nathan. “There are outrageous levels of debt and credit records”, he adds.
What the executive aims to do is to make people aware of their decisions as this has huge financial implications for their financial well-being. Nathan says that retirement savings are tapped into, cashed and used very poorly as people have to tend to straining financial obligations. “To get the most out of savings, leave it untouched”, says Nathan.
This is the great thing about long-term compounding.
“The longer you invest your money, the higher the returns. This is the snowball effect of long-term compounding because you get returns on your investment and growth”.
On the two debts that you cannot avoid but can manage, these are the on-balance sheet debt and off-balance sheet debt.
On-balance sheet debt is money that is owed to lenders such as banks and credit card companies while off-balance sheet debt represents future obligations.
These include children’s education or living expenses during retirement.
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Individuals can manage these debts by investing in their future, says Nathan. “Invest your money by thinking long term and not merely spending money today”.
The reality is that in the long run, your money will grow far more than if you choose to cash out money from policies now. Far too many people cash out their retirement policies without thinking ahead.
Nathan advises that South African’s should also preserve their provident fund instead of cashing it out when changing jobs. Your can cash out partial of your funds in case of emergency but leave the rest and allow it to gain momentum, says Nathan.
What South Africans should especially do is to invest in the stock market, he says. Despite the horror stories that people hear such as the Steinhoff debacle, Nathan says that the stock market has the ability to recover and grow investments exponentially.
The type of fund that will allow for profitable reward is a high equity balanced fund, says Nathan. This type of fund has significant exposure to the stock market while also invested in other equities such as foreign assets and property.
This fund will provide an investor with far greater returns than a bank can, he says. This is because a bank gives returns in line with inflation. Subsequently, expenses may exceed an individual’s income.
Finally, South African’s should be financially prudent and aware of their finances. “All around the globe, people incur large amounts of debt”, he says.
“People are up to their eyeballs in debt and it does not seem to be getting better”. The underlying problem is that people cannot decipher between good debt and bad debt.
Nathan says that when people receive their income, they can either choose to save it or spend it.
“If people can’t make ends meet today, what do they care about the future and retirement. The more we get ourselves into debt, the environment will not promote saving for many people”, concludes Nathan.