12 million South Africans are over indebted

Zain Johnson speaks with Dehan Scherman about the rising debt crisis, why families are using credit to buy food, and how stokvels, informal work, and debt management are helping people stay afloat.

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Episode Transcript

Speaker 1 (00:00):
Let's walk to talk seven notes.

Speaker 2 (00:04):
Was twelve million adults over indebted and thirty seven percent
of formal borrowers struggling to keep up with repayments. South
Africa is a growing financial emergency and a mid job
losses and raising a rising tariffs. We look at how
families are adapting to what needs to change to restore
financial health with Process Development and Change Manager at Financial

(00:28):
Wealth Holding and the Holdings, Dean Sherman, do you have
a very good morning to you and welcome to the
early breakfast show.

Speaker 3 (00:34):
Good morning and thank you for having me.

Speaker 2 (00:37):
Twelve million. That's a lot, twelve million adults who are
over indebted and what does that mean for the average
South African household here.

Speaker 3 (00:46):
So it highlights that South Africans have this over alliance
on credit and it kind of give gives context to
just how many South Africans have a problem managing their
personal finances, including debt. The gravity of the situation, it's
far greater than what one can imagine, you know. Most importantly,

(01:08):
it highlights an urgent need for intervention and financial literacy
programs to assist South Africans in managing their finances better.

Speaker 2 (01:18):
The problem is, you know, people are over indebted. And
is it because people are living beyond their means or
is it just that people can't cope financially.

Speaker 3 (01:31):
Yeah, so you see, it's not one singular reason. It's
multiple reasons. We've seen many consumers who do live well
beyond their means, and even under debt review, for example,
they refuse to manage their standard of living to be
aligned to their affordability. There's also reasons such as inflation

(01:52):
and the ever growing costs, and that that people don't
generally account for it. This is part of any sort
of healthy, growing economy is that prices will increase over time. Right,
it's an indication that people are spending money and that
there's some sort of economic activity. However, we don't always
factor in the fact that things are always going to
constantly become more expensive. It's a constant within our world

(02:17):
and we need to plan accordingly. We also see that
just as inflation increases, salary increases may not be aligned
to inflation, which means that it erodes your current buying
power and the value of your salary because if your
salary isn't increasing in line with inflation, then you're technically

(02:37):
earning less than what you should and we won't be
able to keep up with your standard of living, with
your lifestyle. And then of course we look at poor
financial planning. You'd be surprised at how many people actually
have a budget and know what they spend every month.
And most of the consumers that we speak to, they
don't know. They just say an five hundred around yere

(02:59):
one thousand round day, but they don't have a drawn,
ubstructured budget where they're accounting for every transaction that takes
place and they know exactly what goes.

Speaker 2 (03:08):
Why chatting this warning to dear and Sherrman, process development
and change manager at Financial Wealth Holdings and talking about
the fact that thirty seven percent of formal borrowers are
struggling to keep up with repayments. Dean, are we approaching
then a financial or national financial emergency? If we have

(03:28):
thirty seven percent of the twelve million people battling to
keep up with payments.

Speaker 3 (03:34):
It definitely appears so. So it's a really slow and
steady and consistent increase over time. And you know, as
consumers attempt to adapt to like I mentioned, there's increasing prices,
you know it's only going to get worse because Unfortunately,
people are more likely to turn to debt to make

(03:54):
up for their deficit in their budget. And this comes
back to my original point. Without a budget, without a plan,
without adapting the plan to ever increasing prices, we see
many South Africans turning to debt in order to service
their day to day expenses and to make up for
whatever desk that there is, instead of controlling costs, managing

(04:18):
their budget and looking for alternative streams of income. Sometimes
that's required, and sometimes it's required to do the uncomfortable
thing now so that you prepare for the future.

Speaker 2 (04:31):
Chatting this morning about twelve million adults in South Africa
over in debted and thirty seven percent of borrowers struggling
to keep up with the repayments. Why are so many
people then relying on credit just to cover the basic essentials.
Is it just a bad habit or is it bad planning?

Speaker 3 (04:49):
Dan, It's a bit of both. We've had consumers who
aren't able to manage their expenses very well, and we've
seen how just through looking at that through bank statements,
how many consumers that end up over and debted have transactions.

Speaker 1 (05:09):
Like Way for example, where where they're making you know,
they're either gambling or you can see a lot of takeouts,
or you can see one thing that drains a lot
of money, right, that one thing.

Speaker 3 (05:23):
That isn't a necessity, and that one thing that actually
accounts for a large portion of their budget. So so
so we do see that to a loge extent, people
can't control their costs and can't manage their expenses. To
other extent, we see lack of overall financial planning and
and lack of financial goals, if I can put it

(05:45):
that way. Uh, And then of course there's also a
lack of financial literacy and an understanding of you know,
what what do interest rates mean for you? How should
you manage your money in a way that that helps
grow your Welsh instead of taking out more debts, which
which kind of erodes. So it's a combination of factors.

(06:07):
And like I said previously, this definitely highlights a need
for some sort of change, either through interventions or through
literacy programs or combination. But there definitely has to be
something that's done otherwise it's going to definitely become a
national emergency.

Speaker 2 (06:26):
It's not all doom and gloom, because South Africans have
actually shown incredible resilience in the face of financial predative pressure.
So what are some of the most effective ways that
people are adapting. I was asking just whether people have
got a side hustle, and you know a number of
people work for a salary but also have a side
hustle just to maintain the standard of living.

Speaker 3 (06:49):
Yeah, so you know, South African is operaty or resilient,
and we're very creative at solving problems and at trying
to manage our lives despite you know, the things that
happen in it. So what we've seen is interestingly enough
consumers are, especially with the South Africa, turned towards community

(07:11):
based savings like stock files, which have become actually quite
quite effective way at fostering good financial management because it
it creates almost a sense of public accountability or social accountability,
where people hold you accountable to put this money away

(07:31):
because essentially you're pulling this money together and every month
a person gets their share. So it definitely helps foster
good financial management and savings. And then of course we've
also seen that that many consumers tend to collect you know,
those those those food stamps of food vouchers for the

(07:55):
for the December period, so they'll collect it and they'll
buy it every month the entire year and then save
it up for the end of the year when you
know where they can save a bit of money on
the grocery carts and whatever the case may be. I
think we definitely see how South African is also find
side hustles to make that extra money, to make that

(08:15):
to have that extra revenue or that stream income so
that they can keep up with their lifestyle. But it
shouldn't just be about maintaining your lifestyle. They should be
a goal beyond that, either to improve your lifestyle or
to improve your financial wellbeing. And that doesn't just mean
handling the day to day expenses, but it also means

(08:37):
saving for the future, investing, growing your money, making sure
that there's something beyond just the months to month paycheck.

Speaker 2 (08:48):
Dean Sherman, Process Development and Change manager at Financial Welfare
Holdings chatting to us as morning about the fact that
twelve billion adults over indebted in South Africa, that is
seven percent our formal borrowers are battling to keep up
with repayments and I wonder where the financial discipline and

(09:08):
I think that's the key thing. Don't look at your
standard of living or your way of living, because then
you'll be comparing yourself to other people, and then you
are in trouble. Look at your financial discipline and how
well you are disciplined financially, and try and make the
necessary changes. I know that a number of people will

(09:28):
tell you straight out that they can't make those financial
changes because they just can't cope with whatever they are
coming out with. But then financial discipline is less than
number one