Wonga’s got it wrong about why peo­ple are in debt

Weekend Argus (Saturday Edition) - - PERSONALFINANCE - Bruce Cameron

icrolen­der Wonga. com could not be more wronga. In fact, it could be con­sid­ered to hav­ing gone bonga when it is­sued a state­ment this week say­ing a sur­vey of its client base showed that most South Africans are not liv­ing be­yond their means.

Wronga bonga Wonga. com says 43 per­cent of its cus­tomers need to bor­row only when they have an emer­gency such as ve­hi­cle re­pairs.

By my def­i­ni­tion, any­one who needs to take out a high-in­ter­est, un­se­cured loan, with all the ad­di­tional costs of ad­min­is­tra­tion charges and life as­sur­ance pre­mi­ums, is not mak­ing ends meet.

Wonga. com’s head of com­mu­ni­ca­tions, Deb­bie Shar­wood, was quoted in Busi­ness Re­port as say­ing that peo­ple do not save be­cause they lack fi­nan­cial ed­u­ca­tion.

She is quite right on fi­nan­cial ed­u­ca­tion, but the inference of what her com­pany is say­ing could lead peo­ple up the wrong path.

A loan, for no mat­ter what pur­pose, and its a c c o mpa­ny­ing c o s t s must be paid back. Where in­come equals spend­ing, those pay­ments will tip the bal­ance into neg­a­tive ter­ri­tory.

It is ir­re­spon­si­ble for Wonga.com to im­ply that this is not the case.

Such phoney re­search con­clu­sions un­der­mine ev­ery ef­fort by peo­ple try­ing to make South Africa more fi­nan­cially lit­er­ate.

The far more telling statistic about South African debt comes from the Credit Bureau Mon­i­tor, pub­lished by the National Credit Reg­u­la­tor, for the first quar­ter of this year. There are 9.53 mil­lion con­sumers with im­paired records. That means that 48 per­cent of a to­tal of 20 mil­lion credit-ac­tive con­sumers have im­paired credit records.

Th­ese are peo­ple des­per­ately try­ing

Mto es­cape the clutches of mi­crolen­ders and the banks. If peo­ple have to bor­row to pay for emer­gency re­pairs to a mo­tor ve­hi­cle, they are liv­ing on the edge. If they are just mak­ing ends meet, par­tic­u­larly with the in­fla­tion rate and ris­ing petrol and elec­tric­ity costs, they go over the edge into fi­nan­cial in­sta­bil­ity.

Some­one liv­ing within their means does not tip over the edge fi­nan­cially when there is un­ex­pected or un­planned ad­di­tional pres­sure on the house­hold bud­get. They would have an emer­gency fund to deal with the prob­lem.

Against this Wonga. com non­sense I at­tended an Alexan­der Forbes Hot Top­ics sem­i­nar for re­tire­ment fund trus­tees this week. Much of the sem­i­nar fo­cused on fi­nan­cial lit­er­acy of re­tire­ment fund mem­bers and the roles many peo­ple and in­sti­tu­tions must play to en­sure im­proved in­di­vid­ual fi­nan­cial lit­er­acy, which would re­sult in peo­ple not hav­ing to knock on the doors of com­pa­nies like Wonga. com when they have an emer­gency.

GEN­ER­A­TION SO­LU­TION

A very valid point was made at the sem­i­nar by Belinda Sul­li­van, a se­nior Alexan­der Forbes con­sul­tant, was that if this gen­er­a­tion can re­tire fi­nan­cially in­de­pen­dent, then the next gen­er­a­tion has a far bet­ter chance of also be­ing fi­nan­cially in­de­pen­dent.

In­stead at the mo­ment we have what is called the “sand­wich gen­er­a­tion”, who have not saved enough for their own re­tire­ment but need to bail out par­ents and sup­port un­em­ployed chil­dren into their twen­ties and thir­ties.

One of the speak­ers at the Alexan­der Forbes sem­i­nar was Lyn­d­will Clarke, head of con­sumer ed­u­ca­tion at the Fi­nan­cial Ser­vices Board (FSB), who, among other things, de­tailed the at­tributes of a per­son who could be re­garded as fi­nan­cially lit­er­ate.

Th­ese at­tributes were tested in a study on fi­nan­cial lit­er­acy in South Africa, com­mis­sioned by the FSB and con­ducted by the HSRC in 2011. The study will now be the base­line for fu­ture stud­ies to see whether we as a na­tion are be­com­ing more fi­nan­cially lit­er­ate as a re­sult of var­i­ous ed­u­ca­tional pro­grammes. Th­ese range from work be­ing done by the FSB through to ini­tia­tives by the South African Sav­ings In­sti­tute (Sasi), which launched its National Sav­ings Month, fo­cus­ing on fi­nan­cial lit­er­acy, this week.

Clarke says the as­sess­ment of in­di­vid­ual fi­nan­cial lit­er­acy was di­vided into four “do­mains” (see “How good are you with money?”, right).

In a re­mark that about sums up the ne­ces­sity for fi­nan­cial lit­er­acy, Clarke said: “Crooks in suits sell prod­ucts to peo­ple who do not know what they are buy­ing. The prob­lem of the lack of fi­nan­cial lit­er­acy is that a lot of us don’t know what we don’t know.”

At the launch of National Sav­ings Month, Sasi chair­per­son Prem Goven­der said the lack of fi­nan­cial knowl­edge is com­pro­mis­ing South Africans’ fi­nan­cial well­be­ing and is ev­i­dent in many house­holds – even the seem­ingly af­flu­ent – that are strug­gling to make ends meet, hav­ing trou­ble pay­ing debts, and not plan­ning for re­tire­ment.

Those for­tu­nate enough to have jobs do not know how to man­age their limited in­come or un­der­stand the ben­e­fits of sav­ing ear­lier and longer for re­tire­ment, and many peo­ple are us­ing the wrong prod­ucts for their needs, Goven­der says.

Fi­nan­cial lit­er­acy is the only thing that will pro­tect you from the non­sense of com­pa­nies like Wonga.com and those that sell you poorly-struc­tured, high-cost ed­u­ca­tion poli­cies and fu­neral poli­cies – prod­ucts se­verely crit­i­cised by Clarke as of­ten not meet­ing the rea­son­able ex­pec­ta­tions of con­sumers.

The main point of be­ing fi­nan­cially lit­er­ate is that you un­der­stand the ad­vice you re­ceive and can struc­ture your fi­nances so that, in­cre­men­tally over the medium to long term, you can be­come in­creas­ingly fi­nan­cially se­cure, and hope­fully able to pro­vide for your de­pen­dants and for your­self in re­tire­ment.

A use­ful first step is the FSB’s ed­u­ca­tional site www.mylife­my­money.co.za

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