CAPE TOWN – Twenty-four years after the dawn of democracy, South Africans across the spectrum enjoy freedoms many of their forefathers would never have dreamed of.
It’s true to say that we’ve gained much over these last years and our Constitution is celebrated as one of the most liberal in the world.
Unfortunately, we’ve been unable to make many of those freedoms a lived reality for millions of South Africans.
One area where that’s particularly true is in the financial space which has led to the country being one of the most indebted in the world.
For these South Africans, it’s a trap from which it’s hard to escape: lack of access to opportunities denies people the ability to better their wealth.
And in a world in which we increasingly need products like phones and laptops (think about it: finding out about jobs and applying for them is made significantly easier when you have internet access), many of us don’t have a choice but to buy things on credit.
As personal finance expert, Maya Fisher-French wrote “…Underlying so many choices is the reality of money, and while we may have the opportunity for choice, our choices are often limited by the availability of money.”
According to the National Credit Regulator (NCR), South African consumers were more than R1.66 trillion in debt in 2017, owing an average of R274 000 to creditors.
A survey conducted in early 2018 meanwhile found that some are putting R72 of every R100 they earn into servicing debt, a staggering figure when one considers the other financial needs a person has, including savings.
The circumstances are even worse for low-income earners. A 2015 survey by the Pietermaritzburg Agency for Community Social Action (Pacsa) found that many low-income households take on debt to cover food shortfalls.
Knowing the above, it should hardly be surprising that South Africans only rank as moderately free, according to the Heritage Foundation’s 2017 Index of Economic Freedom.
Recent increases in the fuel price and VAT mean things could take a turn for the worse.
Changing that situation on a macro scale is going to require massive structural reforms.
On an individual scale, however, there are things everyday South Africans can do to unshackle their incomes from lenders and give themselves a greater degree of economic freedom.
One of the reasons that so many South Africans find themselves in such bad debt is because they’re tempted into debt by retailers to buy everything from essentials like school uniforms to high-end electronic goods and furniture.
While the National Credit Act has curbed many of the worst excesses of retail lenders, people can still find themselves in serious trouble if they miss one or two payments.
In order to service their original debts, some end up turning to more predatory lenders who impose terms that few would be able to meet, sending them further into a debt cycle.
We need to arm ourselves with knowledge on what credit debt means and its true cost in the long term.
Part of that means learning about better ways to spend. As much as possible, we should seek out information about smarter shopping that’s easier on our pockets.
Look, for instance, to something called rent-to-own (RTO), a purchasing scheme designed for South Africans who want quality household and tech products but don’t have thousands of rands on hand to buy it. Through this model, you pay a fixed amount every month (it’s unaffected by interest rates) and after a pre-determined period, you then own that product.
RTO makes budgeting significantly easier and is specifically geared to South Africans who don’t have huge disposable incomes on hand, says the retailer.
Should the person find themselves in a financial tight spot, they can simply give one month’s notice and return the goods, rather than having to find money they don’t have to service a loan.
Another important way that South Africans can increase their economic freedom is to be more selective with their purchases.
One of the most effective ways to do this is by using a price comparison service, for instance, the most well-known one being PriceCheck. You might, for example, discover that the hockey stick your child wants costs a few hundred rand less at one online retailer than another.
That may not sound like much, but if you do it with everything you buy, the savings will quickly add up.
The important thing is not to spend these savings on other, unnecessary items. Instead, you should use them to pay off your debts faster. If you manage to put an extra R200 a month into your debt, you could take months off the debt over the full term of the loan (though this isn’t necessarily true of vehicle loans).
And, if you’re lucky enough to have no debts that need servicing, you can invest your savings. Thanks to the power of compound interest, putting a little extra money into your savings every month can pay off exponentially.
Be literate, be persistent
Making use of rent-to-own options and comparing retail prices are just two ways South Africans can give themselves greater economic freedom.
Knowing to do both, however, requires financial literacy. That, in turn, means reading widely and putting what you read into practice.
It might not always work perfectly, but if you apply the lessons you learn, you’ll achieve levels of economic freedom to match those enshrined in South Africa’s bill of rights.
Jonathan is the financial director at Teljoy, a South African retail company with 50 years’ experience in the local market.