Educating our youth is key to reducing indebtedness and encouraging savings

10 June 2011 Absa

With the average debt-to-income ratio of consumers currently standing at a disturbing 78,5%, a longer term debt management solution must definitely include the development of a savings culture among the youth.

So says Gavin Opperman, CE of Absa Retail Bank. “Arguably, the key challenges currently facing many households relate to over-indebtedness and the lack of a savings culture. Recent statistics from the National Credit Regulator (NCR) show that close to 8.5 million consumers have impaired credit records. The number of credit active youth who fall within the 8.5 million consumers with an impaired record is still unclear. However, what is clear is that everyone needs to learn to manage their finances from a young age.”

Opperman says that someone who is blacklisted, unable to apply for finance for assets such as a house or car, unable to repay loans or someone who is denied a good job because of a bad credit record, is over-indebted. These, he adds, are unfortunately the challenges our youth may be confronted with if they do not learn to manage their finances early enough.

“Financial literacy is an investment in one’s personal financial management. As we celebrate Youth Month, we would like to encourage the youth to empower themselves, learn about financial discipline and take control of their finances. Financially speaking, we would like to see our youth enter their adult years on a solid footing.”

The following are some of the tips that help in managing finances well:

· Live within your means - Do not be caught in the trap of living beyond your means due to peer pressure (i.e. dependence on highly priced branded items). Make a distinction between wants and needs.

· Knowledge of credit - Before you enter into a credit agreement, take time to ask yourself the following questions: How much will your monthly repayment be? What percentage will the monthly repayment take out of your monthly income? How long is the repayment term? What happens if you are struggling to pay and what assistance is available to you?

· Budget, budget and more budget - Spending your income or pocket money without a set monthly budget is like driving in the dark without your lights on! You cannot see where you are going and it’s all going to end disastrously. A budget allows you to have a clear picture of your monthly income and expenses.

· Find creative ways to earn additional money - Learn new skills to make you more employable for future, high-paying roles. Start implementing that business idea you have always had during your spare time or find a second job during weekends. It is all about what you are willing to invest in building your own financial security.

· Develop the habit of saving money - Open a Savings Account. A Savings Account is geared to get you to save while the bank pays you interest on the money in your account. Go to your local bank and enquire about a Savings Account if you do not have one already. They will help you choose the right one for your particular needs.

· Speak to your bank - With the steep increase in over-indebted customers, most banks have had to come up with solutions to assist customers in financial distress. Over-indebted customers now have the option to contact their banks and negotiate new payment terms which may lighten their debt load.

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