The size of the problem
Many people in South Africa are struggling with their wellbeing, holistically. Some of this is due to the after-effects of Covid-19: people adapting to hybrid working, reduced opportunity to connect with people, changed financial circumstances. We also need to contend with issues such as load-shedding. The South African Depression and Anxiety Group (Sadag) found in a recent survey that 96% of the 1 836 respondents feared load-shedding would cause long-term damage to the South African economy, leaving many people in a worse state than before.
In May 2021, the National Credit Regulator (NCR) published a report, Unsecured Credit, Credit Cards, Store Cards, and the Impact of Covid-19 on the Consumer Credit Market in South Africa, which noted that in March 2020, 27.99 million consumers were recorded as credit-active. Of those, 10.47 million consumers (37.42%) were noted as having an impaired record and could be classified as experiencing financial distress. More than half of the respondents surveyed by the NCR for the study had incurred additional debt because of Covid-19. In May 2021, approximately 48% of active credit consumers were in arrears, and on average, 85.3% of disposable income was being spent on debt repayments.
In July 2022, the results of the DebtBusters Money Stress Tracker were published. DebtBusters surveyed 14 000 South Africans and found that 70% of respondents were experiencing financial stress, and 94% of these said this affected their home life, 77% felt it affected their work life and 76% believed it was affecting their health. The experience of financial stress was also gendered, with more women reporting higher levels of financial stress.
The TransUnion SA Consumer Credit Index (CCI) measures consumer credit health, where 50.0 is the break-even level between improvement and deterioration. In the fourth quarter of 2022, the CCI fell to 48, holding below the 50 “break-even” point for three consecutive quarters.
Moreover, TransUnion noted, there had been a cumulative fall of 10 index points since December 2021, indicating that the credit health of the average consumer had deteriorated.
The report measured 53.93 million accounts, of which 789 333 were three months or more in arrears. The value of revolving credit measured was R206.24 billion.
Gallup’s State of the Global Workplace: 2022 Report found that the world's employees are feeling even more stressed than they did in 2020 (the previous all-time high) and stress has risen for the third year running.
While healthy credit access plays a role in financial inclusion, it’s clear that financial stress and over-indebtedness are very real problems for millions of South Africans.
This is without even taking into account the “informal credit” market, including avenues such as short-term “payday” loans, borrowing from friends or family, and mashonisas (unregistered lenders or loan sharks). The 2022 Old Mutual Savings and Investment Monitor found 40% of respondents indicated they’ve had to borrow from friends or family to make ends meet.
The credit landscape has evolved rapidly in recent years, with telecommunications companies, clothing retailers and other non-traditional financial services providers beginning to offer personal loans to consumers. After all, the credit industry is very profitable! However, these newer players may operate on different risk models.
What happens now is that someone who doesn’t qualify for a bank loan will likely seek out credit from a retailer or their cellphone provider. If that doesn’t work, they might take out a payday loan or pawn their possessions, or, eventually, borrow money from a mashonisa.
Why financial stress is a problem
This may sound obvious, but financial stress affects everything from mental health to workplace productivity. In my work, I’ve come to believe that there’s also an often under-represented element of dignity that needs to be considered. People feel a great sense of shame about having debt, or about not being able to make ends meet. The topic is still considered taboo.
Legislation
The National Credit Act was established to protect the consumer in the credit market and make credit and banking services more accessible. The aims were to promote a fair and non-discriminatory marketplace for access to consumer credit, to regulate that credit and improve consumer education, and to prevent reckless credit granting, among other things. The Act established the National Credit Regulator and the National Consumer Tribunal.
However, we know that the legislation is not working quite as envisioned. For example, when it comes to debt counselling, a formal legal process, the consumer is meant to be fully educated by the debt counsellor on the consequences of entering into debt counselling. What we’ve seen in reality, however, is cases of some “rotten apples” in the debt counselling industry who trick consumers into going into debt counselling without understanding the implications, because they earn debt counselling fees. The NCR needs to look at closing this loophole.
Clearer communication is also required regarding how debt counselling works. Many people mistakenly think that it’s a short-term process. They don’t realise that it may take several years to pay off their debt, and that debt counselling does not mean their debt will be magically reduced – they will still have to pay most of it off.
The role of the employer
A recent study by Morgan Stanley, State of the Workplace II: Financial Benefits Study, confirmed something I have seen in my own work: employees today want employers to assist them with addressing financial challenges, whether through financial education or access to personal finance tools.
The study found that 84% of respondents agreed that “employers should be more involved with helping them through financial challenges — providing an opportunity for employers to build more meaningful connections with their employees”.
In my work assisting companies with this, I’ve found that when asked what they want in this regard, employees generally ask for two things: confidential access to a financial planner or financial coach through an independent company, and access to financial education resources.
Of course, if those resources exist, it’s important to market them to employees and encourage uptake.
Practical pointers for employers
- Don’t assume debt only affects lower-level employees: Over-indebtedness affects people at every level of an organisation, likely even including some of your C-suite executives. Ensure that financial wellness tools are available to employees at every level, and encourage managers and leaders to engage on the topic of financial wellness too.
- Develop proactive employee wellness programmes: Don’t wait for employees to call a helpline when they are in trouble – often that’s too late. Make financial planning available and visible. For example, every induction programme should include an introduction to your personal finance offerings, such as introducing the financial planner your company works with and showing new hires where they can access financial wellness tools.
- Consider employee wellbeing holistically: Ensure your employee wellness programme is designed to help employees with both mental health and financial wellness.
- Work to ensure you create a safe space for financial discussions: Personal finance is still a taboo issue in most organisations, especially when it comes to issues of financial distress or debt. Employees need to be secure in the knowledge that disclosing financial problems will not be used against them.
- Upskill managers: Creating a culture where financial wellness is prioritised begins with training middle managers. They need to understand the negative effects of financial stress on employee wellbeing and make it safe for people who may be struggling to seek help.
- Encourage vulnerability: Much of the reluctance to open up about financial matters stems from the fact that we tend to feel we are the only ones struggling and that everyone else has their act together. When leaders and managers open up about their own struggles, it encourages employees to do so too.
- Consider innovative new offerings: There are new technologies and offerings on the market that can help you to help employees with meeting their financial needs without getting further into debt. For example, earned wage access platforms (such as Paymenow or Paycurve) enable employees to access a percentage of their accrued wages before payday. This means they can access funds without the threat of a costly loan. However, this needs to be offered alongside financial education to address the root causes of running out of money before month-end.
What to do if you’re struggling with debt
- Be compassionate with yourself: We often beat ourselves up about what we deem to be our personal failures and mistakes, including financial stress. However, this won’t help to improve the situation. The majority of people have not been trained in personal finance or financial planning, so forgive yourself for your mistakes.
- Improve your financial literacy: Educating yourself is empowering yourself. There are many free resources and tools available that will help you to get to grips with basic financial concepts, such as budgeting and saving for emergencies, which will in turn help you to manage your money (and debt) better.
- Use the resources available to you: Find out if your company offers access to financial planning or financial coaching, and make use of these services.
- Ask for help: As is the case with many things, the road to fixing your debt problems is to admit that a problem exists. While it can be daunting to speak about this with someone else, being transparent and vulnerable with your manager about the fact that you are dealing with financial stress can take some of the burden off your shoulders and be the first step in accessing needed help.
Dr Frank Magwegwe is a faculty member at GIBS and lectures on corporate finance, employee wellness, resilience, and quantitative principles. He is also a trusted financial wellness expert who is a regular contributor to newspapers and magazines and a frequent guest on radio and TV shows.
