As we celebrate Freedom Day tomorrow, I am wondering if this will ever end. Some of the apartheid laws were scrapped but the lending / credit systems still continue to enslave a majority of consumers. 28 years after democracy, we still have systems and practices that ensure that some remain poor for life. It is not by chance that we have over 10 million South Africans with an impaired credit record. The system is designed to ensure that many are heavily indebted. We have teachers, nurses, doctors, lawyers and other professionals who are struggling under a mountain of debt. Why is it that I am able to help a few that I can? Why are the banks not helping these people?
The most painful fact is that many don’t know what to do to get out and they are too scared to go to debt counsellors. The absence of personal finance education in our school and university curricula has ensured that we have highly educated and yet equally highly financially illiterate people – this is a perfect condition for a perfect market to sell high interest loans to. Not all of these people are reckless with their money.
- The so called credit profiling system is a tool to ensure that even those who would have preferred to be debt free, get into debt as it works on the No Debt, No Loan rule
- Debt is addictive and sadly, many stay in debt for life
- Many go on pension with their debt
- Then there is the garnishee order system to ensure that you pay the debt over and over and over again until you die or go on pension
- The lack of understanding of finance, especially amongst professionals, ensures that they take on more debt than they can afford. They are given debt while they are university students e.g. 6th year medical students are given credit cards, car loans, overdraft facility, etc… They have debt before they even have their first salary cheque. Sadly, many buy into the lie that they can easily afford to pay this when they start working. Some medical doctors cannot even afford to retire because of the mountain of debt that they have
What I am doing for the few that get to know about me i.e. get them out of debt is something that the banks could do but they choose not to. Performance targets are set to ensure credit cards, personal loans, revolving credits, consolidation loans and other expensive short term unsecured debt are sold, together with the expensive credit assurance and other add-on costs that come with these
To get a good understanding of the systemic nature of why many South Africans are doomed to high indebtedness, stress and all the ills that come with debt, read the article below.
Total of R1,9 trillion, R200 billion unsecured expensive debt
SA unsecured loan boom leaves 40% of borrowers in default
20:23 12/09/2019 Antony Sguazzin
Fund manager Differential Capital
Key points of the paper
- 7.8 million taken out a combined R225bn of loans without collateral, mostly for S-T needs e.g. furniture & urgent family care
- “It is a dysfunctional industry where lenders compete on the largest loan size, NOT on customer value, preying on financial illiteracy and consumer demand for credit,”
- “Even with the high number of defaults, the industry stays profitable by charging “extortionate pricing” and rescheduling loans that are in default.
- Interest charges, once all associated costs are included, range from an annual rate of 225% for one-month loans to 34% for five-year loans.
- 2/3 of customers pay more than a quarter of their net income to service their loans