By: Nthabiseng Monoge
When I was a child, one of my favourite items of my mother’s was her handbag. Whenever we left for the store, I would sprint to her bedroom to fetch her handbag for her, holding it like a newborn baby, a prized possession. Her handbag was always full of envelopes containing letters and her purse was full of coloured cards.
These things intrigued me. They were items only a grown-up had access to and I looked forward to the day when I too could own a bag, purse, cards and envelopes.
It turns out that the envelopes were all the credit card and store card statements for all her accounts. As a child, the items meant independence and freedom. Freedom to buy what I wanted, when I wanted, worry-free.
On occasion, my mother would take us to the shopping mall, pull out a card from her purse, hand it to the cashier and, in exchange, we would get clothes, food and a treat. I don’t recall my mother appearing stressed by the transactions – quite the contrary. The shopping expeditions made her appear content and she looked relaxed, and I looked forward to the day when I was grown up and could also obtain a card that allowed me to take things I wanted.
One of the first things I did when I earned my first salary, at age 23, was apply for a store card at a clothing store. After all, this is what adults do, they obtain store cards and credit cards and then vehicle loans and home loans. This, I believed was the order of being employed and growing up.
I soon learnt that the clothes were not free; they were borrowed to me by the bank or store. I learnt that it is to the credit provider’s benefit – not mine – to pay for a burger meal and shoes over a 36-month payment term, which is the average term for consumer debt. Consumer debt became part of my monthly spending. In truth, I could have bought the items without credit, but I was conditioned and lulled into a life of consumer debt.
My experience is not unique, even by today’s standards. Young people, fresh out of varsity and newly employed, are scanning QR codes and tapping cards and phones to buy consumer items on credit.
The generational financial illiteracy and the negative impact it has on households resulted in the South African government enacting the National Credit Act in 2005. The main purpose of the act is to protect consumers against reckless credit lending and unfair credit practices. Credit providers are required by law to conduct credit assessments, show key credit information to consumers and conduct affordability checks.
Yet, despite this, South Africans are over-indebted. Many South Africans regularly renege on their credit obligations. The practice extends their over-indebtedness and sinks them further into debt.
Despite the best intentions of the act, South Africans fall into vicious debt cycles and continue falling prey to reckless credit lenders of both the formal and informal type.
Financial illiteracy is a near pandemic. Less than 10 years ago, having multiple jobs was considered an American phenomenon. Today in our country, more consumers are seeking multiple employment opportunities. The demand for more income is indeed caused by economic complexities and equally by the need for consumers to service their lifestyle and debts.
Financial illiteracy is destructive. A financially stressed employee is unproductive, distracted and can become a safety hazard to themselves and their colleagues. It is well reported that money troubles, often caused by financial illiteracy, is the number one cause of divorce.
Consumers who are financially strained cannot contribute wholly and freely to the economy because their purchasing power is limited by credit obligations. Poor money management affects a consumer’s credit rating and credit activity. A child forms poor financial habits and a poor relationship with money, informed by their parents’ relationship with money. Generational wealth is thwarted.
Is it time for the National Credit Act to be revised? Financial assessments need to go deeper than just the numbers represented by the affordability assessment. Consumers are not just numbers. They develop relationships with money, instilled from childhood.
The new financial assessment must consider the whole consumer. A consumer with a past; a consumer with emotions and a consumer with their own money personality. Work around financial literacy and financial resolution is being done by various organisations, including Money Relations, but more needs to be done.
It’s promising to see basic financial literacy forming part of the school curriculum, but more practical training needs to be introduced.
For families, communities and society to grow further economically and socially, the destructive impacts of our debt culture can and must be addressed from all angles.
PERSONAL FINANCE