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Guiding those most at risk of debt

06 November 2009 Andre Snyman Consumer Assist
Andre Snyman, CEO of Consumer Assist

Andre Snyman, CEO of Consumer Assist

Brokers have seen incomes battered this year by collapsing portfolios and indebted consumers cancelling policies, while those still financially stable have become risk averse and suspicious of financial packages. They are asking more questions before they buy.

To run an effective brokerage it is necessary to not only be aware of who might be most at risk of debt – despite an apparently healthy bank balance and investment portfolio, but to guide clients to help early if they become debt stressed..

White people dominate those under debt counselling, with those aged 31 to 40 across all race groups most indebted, a major research study shows. And debt counselling has seen a bonanza of repayments to creditors with R40m paid back in February, rising to R97m in August and R104m in September, according to Andre Snyman, CEO of Consumer Assist, the largest debt counselling company in South Africa which conduct the research. Figures for repayments to creditors are based on information from debt counsellors and payment distribution agents.

The research which canvassed more than 10000 consumers showed that men were most likely to come forward for help with 58,12% of debt counselling applicants’ male and 41,88% women.

White people are more likely to seek help to overcome debt, while black consumers will often shy away from debt counselling when they discover they cannot incur more debt until their debts are paid. “This is a matter of education,” Snyman says, “There needs to be a stronger focus on money management, budgeting and overcoming debt in all communities. Ideally, it should start in schools and be reinforced by financial wellness programmes in the workplace.”

He said only a small number of Asian individuals apply for debt counselling, “They end to have strong family bonds and community structures that assist them get out of debt.”

Statistics show the debt breakdown among South Africans to be:

MEN 58,12%

White 44.13%

Black 28,93%

Coloured 22,11%

Asian 4,83%

WOMEN 41,88%

White 40,75%

Black 29,55%

Coloured 25,73%

Asian 3,97%

Those aged 17 to 20 and 71 and older reflect the smallest amount of those in serious debt, the oldest person under debt review with Consumer Assist is 81-years-old.

Once young people start earning they rapidly take on debt with those aged 21 to 30 forming the third biggest section of highly-indebted consumers with a fifth of those in this age group under debt counselling according to the survey sample.

As South Africans begin having families and accumulating homes, generally aged 31 to 40, their debt burden shoots up and they form the largest sector of heavily indebted people in South Africa at 33% of those seen by debt counsellors.

Age does not bring much financial maturity with those aged 41 to 50 forming the second most indebted sector in South Africa with 32% of those under debt counselling, but finally by age 51 wisdom starts setting in and debt drops dramatically with 12% of those aged 51 to 60 under debt review and 3% of those aged 61 to 70.

After debt counsellors haverenegotiated monthly instalments with creditors, on average47%of thoseunder debt reviewpay back less than R3000 a month; 23% pay back under R5000pm; 21% pay back less than R10000pm; six percent pay back less than R15000pmwhile only two percentpay back close to R20000pm and just one percentpay back as much as R65000pm. These amounts are usually 50% lower than the creditor payments was before the consumer applied for debt counselling.

Repayments almost directly correlate to the size of financial institutions and their client base with Standard Bank and Absa receiving the most money back (27% each), followed by First National Bank (16%), Nedbank (13%), Wesbank (12%), African bank (4%) and Capitec (1%).

Among retailers, debt tends to represent the size of the retailer in the economy according to its spending cards so Easton Berry which collects repayments for Foschini, Queenspark and Woolworths receives 44% of repayments, followed by 23% to Edcon (Edgars, Jet), 8% for Sanlam loans, 6% to RCS and the remainder to relatively smaller retail groups.

“Debt counselling is working,” Snyman said, “it is ensuring that money that might otherwise have to be written off or pursued at significant legal and collection costs is being injectedback into the economy through creditors each month which helps businesses stay afloat and jobs to remain secure. It also forms an important educative tool in teaching consumers how to effectively manage money.”

Nonetheless, the National Credit Regulator in its annual report released in October noted that it is a "great concern" that the courts have approved less than six percent of consumer applications for "debt counselling" since the law was enacted in June 2007. Only 6 000 of 11 2961 applications made by September this year had been ruled on by a magistrate because the NCR says banks opposed most.

Snyman says, however, he is heartened by a growing trend for debt to be negotiated in a more constructive way than in the past between creditors, debt counsellors and other parties.

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