Why are South Africans so heavily indebted despite stringent criteria that banks are forced by law to follow before they dish out loans?



Many of South Africa's social ills, including over-borrowing, the bling culture that has infiltrated politics and classrooms - where schoolchildren compete for latest designer labels - require a change of mindset

If STATISTICS quoted by National Planning Minister Trevor Manuel at the Consumer Rights Forum conference last week about the level of indebtedness among South African consumers is anything to by we are in trouble.

The recent figures released by the Reserve Bank show that household indebtedness is at 75.9 percent of disposable income.

This means for many the word disposable income is a fallacy since the bigger chunk of their earnings goes into debt repayment.

Manuel estimates that looking at the middle class alone - at least those who have reasonable jobs and drive flashy cars - their indebtedness is way above 100 percent of their earnings.

Why are we spending beyond our means?

Manuel says either the marketing strategies of companies are so powerful we cannot help ourselves or we are trying to keep up with the likes of Kenny "Sushi King" Kunene.

Manuel's concerns are well founded. What is even more troubling is that many of those who have incurred debt have borrowed heavily to fund consumption. This unproductive spending is what Theodore Veblen called conspicuous consumption.

It would be better to borrow with a view to funding an income generating activity than to borrow merely to spend.

But why are South Africans so heavily indebted despite stringent criteria that banks are forced by law to follow before they dish out loans?

There are two key reasons. Firstly, consumers are still suffering from the hangover of reckless borrowing before the National Credit Act was implemented.

Secondly, the fact that numerous regulatory mechanism do not seem to have had the effect of taming borrowing appetite suggests that more needs to be done to ensure responsible spending.

Clearly, any regulatory attempt by the state to tamper with an individual consumer's appetite to spend would fail.

Manuel's attempt at finding a solution by beginning to address the problem at a psychological level is welcome.

Many of South Africa's social ills, including over-borrowing, the bling culture that has infiltrated politics and classrooms - where schoolchildren compete for latest designer labels - require a change of mindset.

No amount of regulatory instruments would guarantee social responsibility. Education holds the key to the problem.

Research has revealed that over-indebted employees are poorly motivated and less productive. Now, that's something we cannot afford.

No comments:

Post a Comment

Related Posts Plugin for WordPress, Blogger...