DebtBusters CEO, Ian Wason, provides YOU Magazine with expert advice on the consumer debt trap. Debt is a fact of life for many South Africans but are you paying much more than you have to? Here’s advice on the best way to borrow. – By Richard Van Rensburg You’re already deep in debt when your […]
18 June 2013
Narrator (Derick Watts): A new science has been developing, which explains why many of us spend so easily and are unable to survive on our salaries. Simon Dingle works for a company that tracks our spending.
Simon: You’ll go from one year to the next, and you’ll get a massive raise, for example, then you’ll finish that year and go “I’ve still managed to spend all my money”.
Narrator: No matter how much we earn, many of us got to bed worrying about our finances, or the lack of them. Now we knkow that we should be responsible, but we can also be totally irrational about our spending. Now an emerging science aims to explain our relationship with money.
“Behaviour economics says that its all in our DNA. We have a fast and impulsive side to our brains that has evolved over hundreds and thousands of years.”
Simon: Its very good at keeping us alive. When we’re in the jungle, for example, and there’s a tiger around.
Then we got a slower side of the brain which is more rational and more analytical, and that side of the brain is better at making decisions once we have thought about them.
Narrator: Its that reactive and impulsive side that excites marketers.
“they know our triggers, don’t they?”
Simon: “no matter how much money you have, the environment is filled with people who are very good at making sure that they’ll be able to take all of it.”
Narrator: As a result, we sometimes live too close to the edge, and have no financing resources to draw on when times get tough.
“John”, we prefer not to use his real name, had a business that started failing. Everything he worked so hard for was about to be taken away.
John: You not sure what is coming your way. You are assuming the worst. You just know that you will be losing everything.
Narrator: Ian Wason, who runs a debt counselling company, sees the end result.
“Guess when you hear the buzz around here and you look at the size of the operation, it is a reflection of our economy.”
Ian: Yes, I’m afraid so. There are 9.25 million South African consumers in arrears on their debt. So, we’ve created an enormous credit bubble. Now with over R140 billions of unsecured debt out there, that’s grown by 39% over the last year.
Narrator: South Africans, it seems, can’t help spending on credit, or being encouraged to spend on credit. With the festive season over, its going to be another mad scramble to make ends meet.
And to make ends meet, often means another trip to the bank manager.
“A lot of people do try to roll over their debt, and I guess in the end it doesn’t work?”
Ian: You can kick the as far as you like down the road, by borrowing more money, going to pay-day lenders and trying to consolidate, but actually you need to get to the root of the problem, and that’s the fact that people are spending more than they earn.
Narrator: Enabling us to spend more than we earn are not only the micro lenders, but now the big banks.
Deborah Solomons runs a successful debt counselling business, and the number of unsecured loans she sees, staggers her.
Deborah: The big four banks took the Capitec and the African Bank approach, whereby they then recognised and understand that the unsecured lending market was a very lucrative market.
Narrator: “So big money to be made in small loans?”
Deborah: Absolutely. More money to be made in smaller loans than a bond.
Narrator: Some of these loans are being recklessly handed out. The banks and credit providers are finally being brought to book.
Last year, following an action taken by Octogen, a debt counselling company, a fray-head magistrate found that 25 out of 82 credit agreements had been entered into recklessly.
The NCR, responsible for overseeing the industry, is also concerned.
Kedilatile(NCR): So we’ve seen an increase in the number of debt counselling applications, which Is an indication to us, that indeed there is a problem, and unsecured lending is the main cause for such problems.
Narrator: Last year the NCR commissioned a report on unsecured lending. One of the findings was that the majority of unsecured personal loans were to consumers who were vulnerable to changes to economic conditions. A good example is the couple who were willing to share their story, but were too embarrassed to show their faces. Unbelievably, they had 43 credit agreements while living on moderate salaries. They lost virtually everything, when one of them was retrenched.
Man: “Your neighbours got beautiful cars. Your kids are pressurising you that they also want a nice car, then you go and buy it, or maybe to show off to other people.
Narrator: What is an example of conspicuous consumption?
Rejane Woodraffe, ex-chief economist for Metropolitan Life, who founded the Bulongo Lodge in the Eastern Cape, says that this type of consumption is always evident in unequal societies.
Rejane: Conspicuous consumption us about “bling” consumption, its about acquiring goods, not necessarily because they bring you any pleasure, but specifically in order to show that you have reached a certain level of success.
Narrator: But that comes at a price.
Rejane: So you have to get into debt in order to acquire the means to buy the goods so you can display to others what you have achieved.
Narrator: The “bling” starts at the top and filters down to the man on the street.
Man: The people with whom you move with, they are in a certain level, and you have want to be on that level as well.
Narrator: Even those of us who don’t borrow recklessly, don’t know have much of an idea where all our money goes.
This website (22seven) which took many years to build, tracks all our purchases. After being confronted by our spending habits, Simon is adamant that with some minor adjustments, we can survive on our salaries.
Simon: What it does begin, is the process of understanding the behaviour, the irrational thinking that went into spending money.
Narrator: But understanding our spending habits and trying to make adjustments, its too late for most of us who are about to lose everything, home, cars, life insurance and even medical cover. Fortunately, there is a life-line.
This is debt counselling and we have the most progressive legislation in the world to help those in financial stress.
Good debt counsellors can usually negotiate lower interest rates and extended payment periods to ensure consumers have cash in hand to survive. Every month there are about 40 000 judgements handed down, but surprisingly only 6500 debt counselling applications are made.
Kedilatile: We are not seeing more consumers coming out and saying “we do have a problem”. In most cases you find consumers who are actually at the very late stage where there is less that can be done.
Narrator: So its like going to the doctor, you leave it too late?
Narrator: We hear about the debt crisis, we may have friends going through tough times, but it really hits home when you walk into a room with 160 graduates all on the phone, all online, trying to sort out the financial problems of complete strangers.
“Now, Ian, most of your clients, you talk to them over the phone, but don’t you need to meet people face-to-face”?
Ian: No, not at all. Our average client has an income of R20 000 and they generally an office worker, they haven’t got the time to come in and see us and have a long conversation. And also, coming to somebody and telling them you got a debt problem is a very difficult thing to do. And the consumers find it much easier to do it over the phone.
Narrator: Deborah feels face-to-face is vital.
Deborah: This is a marriage. You are married to your debt counsellor. The counsellor will fight with you if you don’t make a payment, you will fight with the counsellor if they don’t get back to you and together you need to fight the banks.
Narrator: Though there are still dodgy debt counsellors out there who runs off with their clients payments intended for creditors, when the process works, it really works well, as John discovered. His home and transport was saved.
John: Post-debt counselling, I was able to get focused on constructive things, which was “okay fine, that wolf is no longer at the door, now I need to start rebuilding.”
Narrator: But well into his debt counselling, it almost unravelled. When John received a call from an attorney representing his bank.
John: And the just of it was, “we are going to revoke your debt counselling and we not accepting this anymore.”
Narrator: Deborah and her attorney demanded that the bank uphold John’s debt counselling and court order.
Deborah: A court order is an order of the court and not even the banks is above this law.
Narrator: But it appears that his harassment by the bank is not an isolated incident.
“How can they do this, this is surely a serious and ferrous infringement?”
Kedilatile: Yes it is a serious infringement because a court order is binding; it should be binding to all parties.
Narrator: While the cost of living plays a major cause for debt for the majority of South Africans, Rejane believes that most of us with decent salaries, can, with a change of attitude, survive. She gave up a well-paid job, and has found meaning in helping impoverish communities in the Eastern Cape.
Rejane: Happiness is not something that comes from goods that you acquire, and its not even about the events that happen around you; its about an inner state. What kind of mother, father, daughter, son you are. That is what brings happiness. Community brings happiness.
Narrator: That community can be experienced again in homes, but only when debt’s crippling effect is confronted, as John’s partner discovered (Jessica)
Jessica: Once the debt administration had been taken place, I saw another person evolve. The self-confidence comes back, his able to focus on what’s important, he can start making plans for his future again, and he can get focused.