Different takes on debt

I’m not sure why there is such a fuss about Pick n Pay’s new credit card but it should make us consider the enormous problem of household debt in South Africa. SA has one of the highest consumer debts in the world. Ten million people are in severe arrears. Total consumer credit is more than R1.6 trillion.

Whenever I go to PnP, I see most people paying with cards, not cash. Surely many are credit cards? Therefore many people are already paying for food with credit. The fear must be that even more indebted people will pay for necessities on credit, which PnP will give them, which will worsen their plight.

It seems people are born with different attitudes towards money. There are different “financial personalities”.

A friend who studies brain function tells me you can see on a scan different pathways in the brains of different people when they are asked to make the same assessments of risk and return.

Some people are terrified of debt; some are addicted to it. I belong to the former. I have a phobia about debt. I must pay all bills the second I receive them.

I have never bought anything on credit except for my house, and that I paid off in 18 months using all of my savings and surplus earnings.

Such behaviour has made me poorer than I should be. I was so scared of debt and taking risks that I missed chances of making more money.

I was so stupid I invested in a retirement annuity, thinking it safe, rather than buying good shares on the JSE, thinking them risky. The RA lost me a lot of money; the shares would have made me a lot of money.

The opposite extreme is much more dangerous. I watch with dread some people, already horribly indebted, plunging deeper and deeper into trouble with wildly extravagant purchases of things they don’t need. For them it must be a compulsion, like a drug or gambling addiction.

Such people probably need the same counselling as alcoholics. Most in debt, though, simply need sensible advice and education, and the services of responsible financial institutions, not ones that encourage them into loans they cannot repay.

Capitec Bank, a huge success, lends mainly to poorer people and has a respectable default rate. Its methods seem simple and sound. Other lenders might learn from it.