And, one in 10 of us who are in poor financial health miss repayments for three or more consecutive months. It is an infernal spiral from which it is difficult to escape.

Reducing debt, including the inappropriate use of short-term credit and creating a culture of savings in South Africa, are major socio-economic challenges facing both individuals and society as a whole.

We know that these bad financial behaviors are the result of the current economic environment and the rising cost of living, but why do 64% of people in poor financial health think they are better off than they are? are in reality?

In addition to living in the present, low levels of awareness and the belief that we are better off than we really are (optimism bias), entrench debt.

In South Africa, 53% of the population borrows money.

This rate is higher than many other upper-middle-income countries in the world, according to the World Bank; Findex Global Report, 2017.

Worse still, credit use is outpacing job growth – people borrow even when they have no way to repay.

Credit facilities such as credit cards, overdrafts and store cards account for 65% of South Africans’ credit accounts – and that’s before looking at informal debt from friends and family or lenders.

Debt means we don’t save

South Africa’s household savings rate is well below that of many other Organization for Economic Co-operation and Development (OECD) countries.

Furthermore, only 40% of South African respondents to an OECD survey were classified as active savers, compared to an average of 64% in other countries.

What does this mean for our future?

It’s just that we won’t have an emergency fund that could push us further into debt, and we won’t have enough money to retire comfortably.

Research also shows that 65% of people don’t know what they spent in the past month.¹. And that more than half of people who think they know what they spent overestimate or underestimate this amount².

Not knowing what you are spending makes it harder to control your spending and manage your debts.

How can we solve this problem.

• First, by being more aware. The link between financial knowledge and financial health is important. This has proven to be effective regardless of income level. It just means that those who earn less might be in better financial health than those with higher incomes. Research shows that higher levels of financial knowledge are correlated with better financial outcomes and better financial behaviors such as stock market participation, proper retirement planning, and debt management.
• Manage your debt by paying off higher-interest short-term debt first. Keep repaying until you have as little debt as possible, outside of your home loan and car payments.
• Use tools like Vitality Money Financial Analyzer, which gives personal details of monthly income, savings, and expenses.

It allows Discovery Bank customers to place their spending in over 166 pre-defined categories or customize and rearrange categories for everything from vacations to home renovations, with predictive search functionality.

With weekly insights into spending trends in each category over time, you can see what you’re saving by tracking and sticking to your budgets, and you can set limits in categories to avoid overspending and earn more rewards for managing your money well.

REMARKS

1. Intuit Mint Life Survey, 2020.
2. The exception is the rule: underestimate and exceed exceptional expenses. Consumer Research Journal, 2012