Are You Financially Intelligent?
Irrespective of income level, South African consumers always seem to be under considerable monetary stress. Looking at past and current figures, the sheer level of stress we endure only seems to have intensified over the years. Everyone appears to be one payday away from over-indebtedness.
According to the National Credit Regulator, 45% of 24 million credit users have impaired credit records. While only 55% of tenants, who pay a monthly rental of more than R25 000 pay in full and on time.
Any slight improvement in the economy only translates into people improving their lifestyles. When they get a pay rise, they automatically upgrade their car and their house, eat at more expensive restaurants, and even socialise with more well-to-do friends. Instead of using that extra money to settle their debts and clear their credit record to create a solid foundation, upon which to build their wealth.
It’s Not an Income Thing, It’s a Spending Thing
We all want to earn more money. Think about all of your previous jobs and the increases you got along the way. Did earning more solve all of your money problems? Consumers spend their lives attempting to earn more, only to end up spending more and never really feeling any relief.
Over-indebtedness doesn’t only affect low-income individuals. 45% of tenants, paying a monthly rental of R25 000 or more, have missed payments. Paying a rental of this amount would mean the house or apartment these individuals are living in is worth R5 – R6 million or more. Moreover, they probably own a premium car and send their children to a private school.
The average person under financial strain is middle-income, at a mid-managerial level and earning a good salary. The average debt to income ratio in South Africa is 76% and this statistic cuts across all salary brackets.
Furthermore, the standard individual who requires debt counselling is in their 30s, earning a household income of R20 000. This shows us that the upper LSMs and middle-class are also taking strain. Accordingly, not only the poor seem to lack financial management skills.
Beyond Earning More
Financial literacy requires being able understand an agreement that’s written in your own language on face value. Financial intelligence goes beyond this to incorporate an understanding of the impact of signing that agreement.
Many consumers don’t know how to use credit effectively. All of the evidence clearly shows that earning more does not make one impervious to falling into arrears. After all, having the money to repay a loan requires conserving not spending the money.
Additionally, when it comes to money management, age is not a factor. Getting older does not necessarily mean you’ll get wiser about how you handle your financial affairs. Saving builds up wealth and spending breaks it down. The passing of time will not alter this fact.
You need to understand the ‘rules of the game’ you are playing. If you are going to lend, you must consider how this will impact your spending ability in the upcoming years. You can use your salary and your credit record to create wealth, by having a plan and sticking to it.