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Johannesburg - The number of young South Africans between 18 and 25 years old who have become over-indebted has grown significantly over the past year, according to a study by Unisa and a student marketing company.
These over-indebted young people are part of the ranks of the more than 50% South African consumers battling to pay their debt.
According to the study debt is increasing rapidly among the youth.
South African university students can, for instance, legally acquire credit cards as long as they can prove they receive a steady income of as little as R200 a month from a parent or guardian.
The study found that student debt has more than doubled in the past three years. About 43% of the students admitted to owning a credit card in the 2012 survey, compared to 9.5% in the 2010 survey.
In the spirit of July being Savings Month, Gwen Moloi, education and communications manager of the National Credit Regulator (NCR), encouraged young people to take back their financial power by avoiding unnecessary debt.
She warned of the danger of purchasing food on credit, and not drafting a budget in order to manage their finances.
“One of the causes of over-indebtedness is living beyond one’s means,” said Moloi. “Some young people may be tempted to acquire things before they can afford them. Often debt accumulates with smaller purchases.”
Absa holds the largest slice of the student debt pie (40%), followed by Standard Bank (32%), according to the report.
More than 1 220 students from the major metropolitan universities in the country took part in the survey. About 77% of them received their income from parents or guardians.
The number of young consumers applying for debt review had grown significantly over the past year, according to Neil Roets, CEO of Debt Rescue.
There had also been a significant reduction in age showing that younger people are getting themselves into trouble.
“We cannot specifically blame the proliferation of credit cards for the explosion in over-indebted young consumers, but there is no question that it has become much easier for all consumers to get unsecured loans,” he said.
About nine million credit-active consumers in South Africa have impaired credit records. That is almost half of all credit-active consumers in the country.
It has become easy for consumers to get unsecured loans from banks and large amounts of credit from retailers and other credit grantors.
South African consumers owe R1.45 trillion in the form of mortgages, vehicle finance, credit cards, store cards, personal loans, short term loans, developmental credit, pension and insurance backed loans.
There is a pressing need to educate consumers, in particular the youth, about the pitfalls of excessive credit, according to the NCR.
Obed Tongoane, CEO of the NCR pointed out that lending money to youths was permissible as long as it was in compliance with the National Credit Act.
"It will really depend on the risk appetite of the credit provider and compliance to the National Credit Act,” he said. “Before credit providers extend credit to consumers, they are required to conduct an affordability assessment.”
If at the time of signing a credit agreement, a guardian signed surety for a youth, then the guardian will be liable for the credit agreement.
Helpful tips:
* If you are battling to pay your debts you should contact your credit providers immediately to discuss your situation;
* If your creditors cannot assist you, consider contacting a reputable debt counsellor for assistance;
* Keep track of your debt by obtaining your free credit report once a year from any of the thirteen registered credit bureaux;
* Cultivate a culture of saving rather than over-spending and living beyond your means;
* Set a realistic budget so that you know how much you are saving and spending;
* Identify needs and wants in your budget and stick to your budget;
* Include all expenses in your budget, categorising them as needs or wants: rent, electricity, water, insurance, transport and food are generally considered needs while gifts and entertainment are wants;
* Prioritise certain expenses: for example your home loan, student loan, rent and school fees;
* Avoid unnecessary credit – borrow money only for what is strictly necessary and make sure you can afford the repayments;
* Keep track of your spending by jotting down and keeping receipts of all your spending;
* Save for rainy days and for the future – consider speaking to a financial advisor about suitable savings products;
* Pay all your debts and instalments on time to avoid higher interest charges and damaging your credit record.
Useful contact numbers
* National Credit Regulator - 0860 627 627
* Ombudsman for Banking Services– 0860 800 900
* Credit Ombudsman – 0861 662 837
* Financial Services Board – 0800 110 443
* Council for Debt Collectors – 012 804 9808
* National Consumer Commission – 0860 266 786
* Motor Industry Ombudsman – 012 361-8824
- Fin24
These over-indebted young people are part of the ranks of the more than 50% South African consumers battling to pay their debt.
According to the study debt is increasing rapidly among the youth.
South African university students can, for instance, legally acquire credit cards as long as they can prove they receive a steady income of as little as R200 a month from a parent or guardian.
The study found that student debt has more than doubled in the past three years. About 43% of the students admitted to owning a credit card in the 2012 survey, compared to 9.5% in the 2010 survey.
In the spirit of July being Savings Month, Gwen Moloi, education and communications manager of the National Credit Regulator (NCR), encouraged young people to take back their financial power by avoiding unnecessary debt.
She warned of the danger of purchasing food on credit, and not drafting a budget in order to manage their finances.
“One of the causes of over-indebtedness is living beyond one’s means,” said Moloi. “Some young people may be tempted to acquire things before they can afford them. Often debt accumulates with smaller purchases.”
Absa holds the largest slice of the student debt pie (40%), followed by Standard Bank (32%), according to the report.
More than 1 220 students from the major metropolitan universities in the country took part in the survey. About 77% of them received their income from parents or guardians.
The number of young consumers applying for debt review had grown significantly over the past year, according to Neil Roets, CEO of Debt Rescue.
There had also been a significant reduction in age showing that younger people are getting themselves into trouble.
“We cannot specifically blame the proliferation of credit cards for the explosion in over-indebted young consumers, but there is no question that it has become much easier for all consumers to get unsecured loans,” he said.
About nine million credit-active consumers in South Africa have impaired credit records. That is almost half of all credit-active consumers in the country.
It has become easy for consumers to get unsecured loans from banks and large amounts of credit from retailers and other credit grantors.
South African consumers owe R1.45 trillion in the form of mortgages, vehicle finance, credit cards, store cards, personal loans, short term loans, developmental credit, pension and insurance backed loans.
There is a pressing need to educate consumers, in particular the youth, about the pitfalls of excessive credit, according to the NCR.
Obed Tongoane, CEO of the NCR pointed out that lending money to youths was permissible as long as it was in compliance with the National Credit Act.
"It will really depend on the risk appetite of the credit provider and compliance to the National Credit Act,” he said. “Before credit providers extend credit to consumers, they are required to conduct an affordability assessment.”
If at the time of signing a credit agreement, a guardian signed surety for a youth, then the guardian will be liable for the credit agreement.
Helpful tips:
* If you are battling to pay your debts you should contact your credit providers immediately to discuss your situation;
* If your creditors cannot assist you, consider contacting a reputable debt counsellor for assistance;
* Keep track of your debt by obtaining your free credit report once a year from any of the thirteen registered credit bureaux;
* Cultivate a culture of saving rather than over-spending and living beyond your means;
* Set a realistic budget so that you know how much you are saving and spending;
* Identify needs and wants in your budget and stick to your budget;
* Include all expenses in your budget, categorising them as needs or wants: rent, electricity, water, insurance, transport and food are generally considered needs while gifts and entertainment are wants;
* Prioritise certain expenses: for example your home loan, student loan, rent and school fees;
* Avoid unnecessary credit – borrow money only for what is strictly necessary and make sure you can afford the repayments;
* Keep track of your spending by jotting down and keeping receipts of all your spending;
* Save for rainy days and for the future – consider speaking to a financial advisor about suitable savings products;
* Pay all your debts and instalments on time to avoid higher interest charges and damaging your credit record.
Useful contact numbers
* National Credit Regulator - 0860 627 627
* Ombudsman for Banking Services– 0860 800 900
* Credit Ombudsman – 0861 662 837
* Financial Services Board – 0800 110 443
* Council for Debt Collectors – 012 804 9808
* National Consumer Commission – 0860 266 786
* Motor Industry Ombudsman – 012 361-8824
- Fin24
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