How you can avoid the debt trap

2017-07-21 05:00
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Cape Town - Despite the "hard place" SA consumers find themselves in, they need to improve both their knowledge and attitudes to saving, says Nashalin Portrag, marketing actuary at Momentum’s corporate and public segment.

Portrag says interventions need to be multi-fold. South Africa is one of the most indebted nations in the world.

According to the National Credit Regulator, SA has a total of 23.88 million credit-active consumers and 75% of income is used to repay debt. These numbers reflect the country's low savings levels.

In the first quarter of 2017, the MMI Unisa Consumer Financial Vulnerability Index reported that consumers were feeling mildly exposed in terms of savings. The results also show that consumers’ ability to save is limited.

This sentiment is mirrored in the debt servicing and income sub-components that reflect increased vulnerability, highlighting the vicious cycle of a negative impact on savings plans, brought on by the pressure to service debt and cash flow strain.

“The culture of living beyond one’s means and relying on credit to provide for needs and wants must change, as this leads to the debt trap which seriously constrains attempts to save,” says Portrag.

He added that financially vulnerable employees experience higher levels of stress, which may impact their ability to come to work, or be fully engaged and productive.

This will inevitably impact an employer’s bottom line. There is, therefore, a real incentive for employers to offer financial literacy training for employees and to assist with automated savings programmes.

Portrag says awareness efforts such as National Savings Month are beneficial in getting people to talk about finances and the need for preservation.

* It's National Savings Month. Do you have a successful savings plan or story to tellShare it with us nowand help others to also become Savings Heroes. For more on savings visit our special Savings Issue.

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