JOHANNESBURG – For most people, accruing some debt is a reality at some point in our lives. None of us are immune to changes in our financial situation. Money problems that arise from unexpected expenses, job losses, illness, divorce, poor performing investments and the general downturn in the economy can all take their toll on our financial well‐being.
According to the National Credit Regulator (NCR), South Africans are over‐indebted. Even ‘good’ debt, such as investing in a property that could potentially increase an individual’s net worth, can leave the average wallet stretched well beyond what they can afford. More prevalent though is ‘bad’ debt. Characterised by borrowing money to purchase depreciating assets, South Africans are struggling to keep up with repayments. Of the 25 million active credit consumers in SA, 10.23 million or 40% of these consumers are behind on their payments.
Unfortunately, the sound financial advice to not go into debt to buy items that don’t go up in value or generate income is often disregarded. And whether it’s ‘good’ or ‘bad’ debt, consumers rarely calculate the impact of debt on their personal well‐being. But, as many of us already know, borrowing from future income to pay back debt over a long period is costly, not just in terms of money, but in terms of our mental health and quality of life, too.
The biggest flaw in the lender model is that credit encourages people to spend more than they can afford. The 10+ million consumers who live with the daily stress and anxiety of being unable to meet their repayment commitments are likely to be caught in a continuous downward spiral of more debt. A study by the University of Nottingham found that people who struggle with debt are twice as likely to suffer from depression resulting in those same individuals turning to retail therapy to relieve their depression. That is a double whammy!
While many over‐indebted consumers regret their decision to borrow money or buy on credit, the reason they initially committed themselves is often due to their inability to make an immediate purchase for high ticket items. And in a world that prioritises convenience and immediate gratification, what are the options for consumers who want to furnish their homes, for example, but don’t want to wait an extended period to save for these items?