While there were significant budget reforms in the US and government bailout in Europe following the 2008 global financial crisis, the South African economy weathered the crisis admirably and has not felt the worst effects of the crisis. However, this is
The South African population is heavily segmented with a significant gap existing between the upper, middle and lower classes. And while this gap exists, the cost of living increases and many South Africans find themselves in a position whereby they face living outside of their means.
While the perception exists that most South Africans applying for or unsecured loans are doing so as a result of living beyond their means, a recent survey by financial services provider Wonga.com has revealed that the primary reason for these applications is to cover unexpected costs.
Emergency Loans
The survey, which was conducted among over 12 000 Wonga SA customers, found that nearly half of respondents (45%) have used a loan to cover an unexpected and important expense.
According to the survey results, the top reasons for applying for a loan include: essential household items (22%), urgent bills (18%), school/college fees (14%), motoring costs (12%), utility bills (10%) and dentistry/medical expenses (7%). According to the survey, unexpected car repairs are another major reason to take out a loan.
Better Planning Needed
Kevin Hurwitz, Chief Executive Officer of Wonga.com South Africa, says while one could argue that costs such as school or college fees should be budgeted for, it is clear that most loan applications stem from unforeseen incidents, rather than for frivolous purposes.
In addition, when asked whether their monthly salary covers their monthly expenses, 43% of respondents answered yes, unless there is an emergency, while 36% answered always or usually.
Hurwitz says these statistics are important as they suggest failing to factor in the possibility of unexpected expenses is one of the key reasons for the growth in the number of consumers applying for short term loans, rather than irresponsible behaviour.
Change of Mindset Needed
This sentiment is mirrored by the 2012 Financial Literacy in South Africa report commissioned by the Financial Services Board (FSB) which found that less than one-third of South Africans (29%) reported setting aside emergency or rainy day funds that would cover expenses for at least 3 months.
“This lack of financial awareness paired with the rising cost of living means most people are simply not budgeting for a rainy day. It is critical that wherever possible, people need to set aside money each month to cover “unforeseen” expenses,” says Hurwitz.
Eunice Sibiya, head of Consumer Education at FNB, suggests that South Africans need a mind-shift, away from a culture of spending and debt, to one of responsibility and savings.
“The key to saving is having financial plans and goals, you are the only one with control over your own finances” says Sibiya. “You need to know what your short, medium and long term financial goals are. And you can work these out by drawing up a budget and sticking to it.”
A short-term goal is one that comes up in the next couple of months up to 2 years, such as buying a pair of shoes, furniture or planning a holiday. A medium term goal is one which needs more consideration and a longer period to save, such as deposit on a house, car or saving for your children’s education. A long term goal is the most important, such as your future retirement and you need to ensure you are putting away sufficient amount of money so that you are able to retire comfortably at an older age.
“It is not about the salary that is earned every month, but how that money is used to better your financial position,” adds Sibiya.
Budgeting is essential for day-to-day living, but also important for saving. Sibiya says that one should budget to save, in other words, include a portion of your salary every month as an item on your budget to put away, rather than waiting until the end of the month to see what is left over.
Editor’s Thoughts:
There needs to be a cultural shift in South Africa towards working smartly with our money. The fact that so many South Africans are applying for credit in order to cover emergency situations suggests that there is a culture of poor planning. What we need to realize is that while South Africa is seen as the economic power house of Africa, the Rand has taken a significant hammering during stages in the first half of the year. This puts the South African consumer under significant pressure as living and associated costs increase. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.
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Added by khanya7, 25 Jul 2013