We’ve lost the plot when it comes to borrowing and saving
Recently I had a conversation with a young woman who, along with her husband, is under debt review. She told me that they had just let their lifestyle get ahead of them – they bought a house, went a bit overboard on the car and started maxing out all their credit lines to live a lifestyle they couldn’t afford. One of the examples she gave was a trip to Thailand that they put on their credit cards.
As their debt repayments started to leave them with less money at the end of each month, so they had to borrow more to keep going ‒ it is the story of most South African households. Eventually the bubble burst and debt review was the only option to stop them losing their home.
So when I received a press release about a new initiative between the travel industry and Nedbank to provide the “middle class” with affordable financing for local and overseas holidays, I confess I blew my lid.
We are living in one of the most indebted countries in the world, we have one of the lowest savings rates in the world – even among poorer economies – and the Old Mutual Savings and Investment Monitor found that two-thirds of the middle class are feeling “overwhelming stress” about their debt levels. Families cannot make provision for their children’s education, are completely underfunded for retirement and do not even have R1 000 available for emergencies.
Yet we want to take on more debt so that we can travel. The idea behind LeisureFin can be seen in some ways as noble as people are already taking on expensive debt to fund these lifestyle choices so by providing less expensive credit one is effectively assisting people. The problem is that this is not solving a very real problem and that is our addiction to credit. This is the essence of the problem facing South Africa – we don’t save for anything, we borrow and pay later at immense costs. What happened to the idea of saving towards a dream holiday? And if you say “I don’t have money to save for a holiday” how can you say you have the money to repay it – with interest?
Why do the banks not rather bring out a product that pays a very aggressive interest rate for people saving towards their holiday? Nedbank has a retail bond which is paying 9% per annum – why not provide that savings mechanism rather than issuing loans? I will tell you why: because we want instant gratification – we don’t want to wait two years and pay for the holiday with our savings. We want to go immediately and we will deal with the consequences tomorrow.
When I told the young woman about the product, she said “Maya, people will love the product. Nedbank and the travel agency will make a fortune and then the debt review companies will too.”
This article first appeared in City Press.