CityPress - - Business -

ave a look at your bank state­ment and cal­cu­late how much of your monthly salary goes to re­pay­ing debt. Imag­ine if, apart from your mort­gage, you had no debt re­pay­ments (think of all the money that would be avail­able for sav­ings).

The re­al­ity is that we have al­ready spent our fu­ture sav­ings on cars, credit cards, per­sonal loans and store cards. Rather than al­low­ing our sav­ings to com­pound and grow in value, our debt com­pounds and ab­sorbs an in­creas­ing amount of our po­ten­tial sav­ings.

Take, for ex­am­ple, a wash­ing ma­chine bought on hire pur­chase. A R2 900 wash­ing ma­chine fi­nanced over 24 months will cost you about R7 000 in to­tal, or R300 a month.

If you de­cided to save for a wash­ing ma­chine by putting away that R300 in­stal­ment ev­ery month in­stead of buy­ing it on credit, it would take about 10 months to save R2 900. Once the ma­chine was pur­chased, you would be able to con­tinue to save the R300 for ei­ther another item or for the fu­ture. The money re­mains in your pocket and also forms part of your sav­ings.

But if you buy the ma­chine on hire pur­chase, you will spend two years pay­ing the store R300 a month. All your po­ten­tial sav­ings have now gone to who­ever you bought the item from. Stores grow their profit from the money they make from the in­ter­est and other fi­nance charges, and the money goes from your pocket to their share­hold­ers.

Their share­hold­ers are those peo­ple who never buy on credit and rather in­vest their money in com­pa­nies like re­tail­ers and banks – which make their money out of peo­ple who bor­row money to fund their lifestyles. In ef­fect, South Africans are sav­ing in a very skewed sense, through a trans­fer of wealth from bor­row­ers to in­vestors.

We con­sume our sav­ings

A study by Pro­fes­sor Carel van Aardt, re­search di­rec­tor at the Bureau of Mar­ket Re­search at Unisa, found that while the global trend is for peo­ple to save more as their in­come in­creases, a higher in­come did not trans­late into higher sav­ings in South Africa.

He found that South Africans spend far more on con­sump­tion than peo­ple in other coun­tries do. For ex­am­ple, the re­search showed that higher-in­come house­holds tended to buy a new car ev­ery two years and up­grade to new homes ev­ery five to 10 years, rather than work on re­duc­ing their debt.

Fig­ures from ve­hi­cle fi­nancier Wes­Bank show that the av­er­age cus­tomer sells their car within three years. In com­par­i­son, a re­port by busi­ness news chan­nel CNBC found that be­fore the fi­nan­cial cri­sis be­gan in 2008, Amer­i­cans would hold on to their cars for an av­er­age of five years, but were keep­ing their cars for even longer now.

Online automotive re­pair re­source com­pany Au­toMD.com’s 2014 Ve­hi­cle Mileage Sur­vey found that only 3% of Amer­i­cans sur­veyed would sell their car within three years, and nearly 80% said they would hold on to their cars for 10 years or “un­til it died”.

When it comes to cars, South Africans are more con­sumerist than the world’s most con­sumer-driven na­tion. The re­sult is that South Africans find them­selves deeply in­debted in their for­ties and fifties – a time when they should be free of debt and sav­ing their ad­di­tional in­come for re­tire­ment.

So why are we so ad­dicted to debt? Per­haps it is sim­ply be­cause we can get it. One of the key dif­fer­ences be­tween South Africa and other emerg­ing mar­kets is that South Africa has a very so­phis­ti­cated lend­ing en­vi­ron­ment. Credit is far more avail­able and per­va­sive than other coun­tries that are at a sim­i­lar level of de­vel­op­ment. This could ac­count for why South Africa has such a low sav­ings rate when com­pared with our peers – we don’t have to save up for the things we want be­cause we can have them to­day. Un­for­tu­nately, this comes at the cost of our longterm fi­nan­cial well­ness.

With the SA Re­serve Bank and Na­tional Trea­sury fi­nally wak­ing up to the re­al­ity that South Africans have been gorg­ing them­selves on ex­cess credit, the clam­p­down on lend­ing could see a shift away from the credit mind-set to one of sav­ing – like our coun­ter­parts in In­dia and China – but I am not so sure.

Hu­man na­ture is such that we get used to liv­ing a

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