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20-somethings caught in a debt trap

By Danielle van Wyk

The incurring of debt at some stage in one’s life is unavoidable for most. The common challenge, however, presents in managing the debt, and this is an issue that is worringly and increasingly plaguing South Africa’s youth.

“DebtBusters has seen an increasing number of people under the age of 25 who are struggling with debt, with almost 30% of new DebtBusters clients under the age of 30,” stated Wendy Monkley, head of marketing, at one of South Africa’s biggest debt counsellors, Debtbusters.

Attributing factors

Monkley attributes this to a variety of factors, the biggest one being family responsibility. “Many of these individuals are ‘sandwiched’ by debt taken on to support parents, siblings’ educational aspirations and their own children.”

This sense of responsibility often sees these young people lending money to family members or taking out credit on their behalf, without proper thought for financial consequence or implication.

“These youngsters inevitably find themselves in a situation where they (in their early 20’s) are subjected to more borrowing to repay existing debt and to meet day-to-day obligations.

“As soon as these youngsters start earning money, their families begin to put pressure on them to help with expenses like buying clothes or food or paying for the education of a younger sibling. They don’t realise that they are taking out too many loans and are left feeling trapped, needing more and more loans to pay their current ones,” explained Monkley.

Another factor stems from the fact that in many households, this generation of youth is the first to be educated. Their parents either weren’t given the opportunity or couldn’t afford it.
Because of this, financial education hasn’t been passed down as it should in the home environment. This in turn has implications for not only the individual but the future of financial security nationally, as it perpetuates an ‘inter-generational debt trap and poverty.’

“The latest Quarter 4 2015 DebtBusters statistics show that on average, those earning less than R5, 000 per month would have required 146% of their net income to pay their monthly debt repayments, which is an impossible task,” stated Monkley.

Advice 

Her advice to the 20-something’s stuck in a debt trap is: “If your family is relying on your generosity time and time again, sometimes the best help you can give is supporting them to resolve their situation.

“Helping your family learn to live within their means and teaching them successful money management strategies will have lifelong benefits beyond any short-term cash flow assistance you are able to give them today. Start by getting yourself out of debt so that the future of your own children is not one that is burdened by financial difficulties.”

The fact remains that good financial advice is not taught at school level and young adults are only really being exposed to it when they first enter the world of work.

Lender weighs in 

“However, just because they are young, it doesn’t mean that young adults shouldn’t take full responsibility for their finances,” added First National Bank’s (FNB) head of consumer education, Eunice Sibiya.

Sibiya further outlined a few tips for youngsters in this regard:


-Take responsibility for your own finances first: Learning how to manage your finances properly will always be a necessity, regardless of how much you earn. Try making an effort to read up on personal finance material or speak to someone who is knowledgeable on the matter.

“You are now an adult, and although some may still have parents as a financial support, you need to understand that it is your responsibility to manage your own finances,” says Sibiya.

-Keep a record: One of the most vital aspects of financial management is understanding the principle of income versus expenses.

“Take note of all the money that you earn whether it is extra money baby-sitting in your spare time or a salary from your first full time job,” advised Sibiya. “Be aware that even small, seemingly insignificant expenses such as buying a coffee or a takeaway add up.”

-Budget: Once you understand where your money is going, you are better able to keep track of what it is you are spending it on. This is arguably one of the most important lessons.

“Budgeting and keeping a record of money in and out is arguably one of the most important skills you will learn when managing your finances,” noted Sibiya.

-Avoid debt as far as possible: While it is understandable that many students have the expense of a student loan and its repayments, which is classed a ‘good debt’, the key is to avoid unnecessary credit cards and store cards as a rule of thumb.
“Think about what you buy very carefully. Will you really remember the expensive clothes or things you had in your early 20s? Highly unlikely. So don’t be tempted to take on debt to buy expensive clothes or luxuries.

“You may think you need to keep up with your new work colleagues or your friends at university, but it is not worth it. There will always be a new outfit or items out there, but the money you earn is precious, use it wisely and later on in your life, you will have had a big financial head start,” warned Sibiya.

-Be inventive with your money: Opt for experiences that won’t cost you as much money, but will see you still being able to socialise and have loads of fun. Examples of activities like these are visiting the park or beach. Inviting friends over and staying in while cooking dinner and doing your own nails.

“It is sometimes more fun and memorable to have an experience that you didn’t just hand over cash for, but had to work out and accomplish,” suggested Sibiya.

-Start saving now: It is important to implement this principle as early as your first salary.

“Don’t be fooled into thinking that you have your whole life to earn money, so there is no reason to save now,” stated Sibiya.

-Set financial goals: Setting certain financial goals for yourself can assist you with saving.

“At the end of the day your financial situation comes down to what you have saved and what money you have, not what you spent, so the sooner you save, the better off you will be. The most important ally you have is time, which provides you with a longer investment horizon,” concluded Sibiya.

Credit providers are more and more clamping down on their risk profiles, and as a result their lending facilities. “It’s a bit of a double-edged sword. There is no more credit out there because times are tough,” stated Monkley.

For this reason it is always best to start early with maintaining healthy financial habits, to avert falling into serious unmanageable debt later. 

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