With the recent interest rate hike bringing rates to a 14-year high of 11.25%, already indebted South African families will need to take extra precautions against incurring unnecessary debt this long weekend.
This is according to the CEO of National Debt Advisors (NDA), Charnel Collins, who says that with the South African economy perpetually dwindling, debt has become an increasingly pervasive issue, with more than half of South African households in debt.
“The increase in interest rates on an already indebted nation is devastating,” said Collins.
She explained that it would impact the overall financial well-being of consumers and all types of debt – from credit card repayments to the repayment of a home loan.
“As an example, in April 2022 consumers with a R1.5 million bond over 25 years were paying R11 330 per month – no deposit given. As at April 2023, they can now expect to pay close to R 3 644.00 more – bringing monthly instalments up to R14 974.
In addition to this, Collins points out that the inflation rate also recently rose to 7% for the first time in four months, “which will now see consumers having to shell out more for an average basket of goods – causing a knock-on effect for their pockets”.
The ongoing burden of debt has become a significant source of stress for families.
According to Collins, the financial and emotional strain of a growing debt-servicing burden just to keep the lights on and food on the table, is particularly significant for families.
She pointed to the latest General Households Survey conducted by Statistics SA. The data reveals that 51% of South African parents have experienced financial strain affecting their family life. Financial experts have said that the crux of the problem lies in the lack of financial education within the household.
Collins agreed that a lack of financial know-how was a root cause.
“While interest rates and the cost of goods are not things we can change, our financial decisions are largely within our control. Teaching children how to save and build good financial habits from an early age and demonstrating these within the household are critical – especially in tough times. “By passing on good money habits to our children, we can help them avoid the pitfalls of debt and build a financially secure future,” said Collins.
A crucial starting point is teaching children the difference between good and bad debt and how to manage credit responsibly.
With the introduction of easy-to-obtain credit cards and personal loans, credit has become increasingly accessible.
While credit could be a useful tool, not all debt was created equally, Collins warned.
According to the latest Eighty20’s Credit Stress Report for the fourth quarter of 2022, the current balance on all loans is up 3.8% quarter-on-quarter, with increases across all loan products.
Data from the report showed that the second largest percentage increase came from credit card accounts, which were up by 7.2%.
“This is a clear indication that taking on too much high-interest debt can quickly become unmanageable, leading to a cycle of debt that can be difficult to break,” she said.
Collins also highlighted the importance of understanding the role of money within a family.
“Setting mutual goals and working together to achieve them can alleviate financial stress and bring families closer together. Financial stress can put a strain on relationships, and it's essential to have open and honest communication about financial goals, priorities, and spending habits,” she said.
Balancing money and family life can be a challenge, but it's not impossible. Collins highlights key money habits parents should pass on to their children to safeguard their financial future:
Saving:
It is crucial to teach children the value of saving money. Encouraging children to save a portion of their allowance or chore earnings can help them develop the saving habit.
Budgeting:
Budgeting and money management are important life skills to learn. Parents can involve their children in the creation of a household budget and demonstrate how to allocate funds for various expenses.
Delayed gratification:
Delaying gratification can help children develop self-control and avoid impulsive spending. Parents can encourage their children to save for something they want rather than purchasing it right away.
Comparison shopping:
Teaching children how to compare prices and find bargains can help them save money. Parents can teach their children these habits by involving them in grocery shopping.
Avoiding debt:
It is critical to teach children about the dangers of debt and how to avoid it. Parents can teach their children about credit cards and loans, as well as the importance of paying bills on time.
Investing:
Teaching children about investing can help them understand how to make money grow. Parents can teach their children about different types of investments, such as stocks and bonds, and encourage them to open a savings account or invest in a mutual fund.
Giving:
Finally, parents can instil in their children the value of giving back. Encourage children to donate a portion of their pocket money or volunteer their time. This will help them to develop empathy and gratitude.
“Setting boundaries around spending, avoiding unnecessary debt, and practising financial self-discipline can all contribute to a healthy financial situation and a happy family life,” said Collins.
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