Can we change our debt into savings?
As dire as things are, there is a way for South Africans to claw their way out of the debt hole.
We all know the scenario; there seems to be far too much month left at the end of our money. For the fortunate among us – and I use that term loosely in this context – we can survive on our credit cards until payday rolls around.
The less fortunate, however, cannot because they simply do not have access to the level of credit that South Africa’s middle class enjoys.
Instead, millions of people resort to micro or payday loans and end up forking out substantially more than what they borrow each year because of the exorbitant interest rates charged.
This situation is exacerbated by the increasingly trying times we find ourselves in now, with many businesses having lost months of income due to lockdown, wages being cut, and the Unemployment Insurance Fund battling under the sheer weight of applications.
More than 17 million South Africans rely on social grants to make ends meet each month, although we can expect this number to increase as unemployment grows because of Covid-19 and the economic implications.
South Africa’s unemployment rate - currently around 30.1% – is projected to reach 50% by the end of the year. That’s because more than 2.5 million people will likely have lost their jobs by then.
This rate, however, only includes people who are actively searching for jobs and does not count those who have given up and taken to standing on the side of the road shaking a cup or hawking beanies.
That’s going to increase the burden on an already overburdened government in terms of social support.
The result? Easy pickings for loan sharks – or mashonisas – as they are known, and an environment that makes it very easy for them to thrive.
Mashonisas typically offer small, very short term loans of between R50 and R5,000, often over three to seven days. Interest rates vary, but generally range between 30-50%.
Because of the usurious interest rates, loan shark customers generally do not escape the debt trap, which is a nasty spiral downwards.
Finding a solution
However, there is hope. There is a way that staff can make ends meet without paying an arm and a leg, escaping the payday loans trap, and climbing the ladder to financial freedom.
Consider it this way: Employees take the risk of working upfront and only being paid for their labour at the end of a predefined period, which is either weekly or monthly. Further to that, as Employers, we expect our lowest income earners, who are not only financially excluded but are also sometimes the most financially illiterate, to work the best with the little that they do have for a month long.
Instead, employers should consider giving employees real-time access to already earned wages.
Employers can help their staff avoid crippling loans through allowing them to access salary advances; amounts of between R200 and R500 that will make all the difference when staff come up short before payday arrives.
Although early access to wages may initially seem like a bizarre break with tradition, it has several advantages for companies, including the fact that it helps staff get out of a debt trap. Think of it this way: There’s no interest due to a loan shark, which will free up your employee’s cash flow. After a while, they will get to the point at which they can save.
Your offer will also boost your employees’ happiness, productivity, and focus at work because they will not be unduly worried about having to buy a new pair of school shoes now, when that was very much not in the budget.
Another benefit is that your employees will be less likely to be off ill; it's estimated that more than 70% of doctor visits are due to stress-related health problems. And 55% of stress is money related.
Showing you care about employee welfare will also help attract and retain talent – and it could be the impetus someone needs to really show their worth, climbing the ladder to success.
Bryan Habana is the Head of Business Development at Paymenow.