Addressing employee indebtedness crisis shows productivity and financial wellness

In South Africa, the prevalence of over-indebtedness has reached alarming levels. Picture: File photo.

In South Africa, the prevalence of over-indebtedness has reached alarming levels. Picture: File photo.

Published Apr 9, 2024


By: Alfred Ramosedi

AMID the stresses of a strained economy and growing financial pressure on consumers, two pivotal questions ought to be taken much more seriously in the corridors of business in South Africa: Is the issue of employee indebtedness taken seriously enough? Is there adequate understanding of the impact of the dire economic situation on millions of workers?

In South Africa, the prevalence of over-indebtedness has reached alarming levels, with an FNB survey showing it takes an average of just five days for middle-income earners to spend 80% of their salary, with 30% of their salary servicing debt. An ongoing reality for millions sees families making heartbreaking choices between essentials. It’s a cruel equation where survival often means sacrifice – a skipped meal, an unpaid bill, a child’s education forsaken.

Millions of consumers are confronted every day by the challenges inherent in living in this country. Load shedding and crime stats feature prominently and, added to that, financial pressure is a significant crisis impacting millions.

For employers, the day after payday typically sees absenteeism spike as employees scurry to unscrupulous lenders to bridge the gap until the next payday. Such loans, with their high-interest rates, only tighten the noose, leaving monthly wages stretched thinner than ever.

To address this scenario, in 2019 Bayport made a strategic business model pivot to partner with like-minded employers to challenge the curse of indebtedness and produce tangible results from an employee financial wellness perspective.

Insights based on Bayport’s previous 15 years of offering debit order loans clearly showed that an over-reliance on this model was unsustainable. While these products have a role in providing short-term relief, they do little to address the underlying issues of over-indebtedness.

While this had been fundamental to Bayport’s past, we could not ignore the red flags that were increasingly pointing towards consumers pushed to crisis point. We saw an opportunity to shift our focus to one that placed a far greater level of engagement from employers while addressing the dire need within their workforce.

Dozens of forward-looking companies have realised that employee financial wellness has a crucial bearing on workers’ mental well-being, without which morale and productivity are affected.

In the case of employees in lower income brackets, many are so burdened by debt to the extent that their bank balance is cleaned out within hours of being paid.

Traditional lending models are simply insufficient to address broader consumer needs: true financial empowerment requires a holistic approach that goes beyond personal loans to a range of offerings, including debt consolidation and education.

The answer is to tackle the core of the problem by developing a managed programme designed to address over-indebtedness and promote financial wellness among employees of corporate clients who have acknowledged the importance of financial wellness within their workforce, and who have adopted a structured programme that rehabilitates indebted workers.

This is key – without rehabilitation, consumers are constantly circling the indebtedness drain. Central to this is demonstrable financial education to empower employees with knowledge about managing their finances and lifestyle – effectively enabling employees to manage their finances, within their means.

At the same time, the root cause of the problem – over-indebtedness – must first be removed.

The key to reducing their immediate debt burden is taken over by the financial services company customised to each specific case depending on the exact nature of the debt. By individually negotiating settlement discounts, sometimes up to 50% with each creditor, a substantial reduction in the debt burden can be achieved.

This is a win-win for all parties. The individual now has an improved credit rating and affordable monthly instalments which give them more available cash to cover living costs, and the employer has a once-again productive, clear-headed employee.

By partnering with employers, financial solutions are brought directly to the workplace, fostering employee engagement and accessibility via an on-site engagement model with the employer ensuring instalments are deducted from wages.

Embedding the programme within employers' premises facilitates employees’ direct access to assistance, eliminates barriers, and creates a supportive environment where individuals can seek immediate guidance and support without having to navigate external channels.

Empirical evidence has been amassed demonstrating the effectiveness of this approach, including significant reductions in debt obligations, improvements in credit scores, and a decrease in stress and anxiety.

* Ramosedi is the CEO of Bayport Financial Services.