With December petrol price slashed and junk status narrowly avoided, consumer confidence is returning to South Africa in time for Christmas…
With December petrol price slashed and junk status narrowly avoided, consumer confidence is returning to South Africa just in time for Christmas. But is this fresh uptick in spending really a positive thing, especially in the face of South Africa’s significant personal debt crisis?
As one of the most personally indebted nations in the world, South Africa has some serious issues with debt – and a spending problem to come to terms with too. With Christmas right around the corner, burgeoning consumer confidence could cause many of the country’s already debt-ridden individuals to borrow more and spend even less savvily.
Good debt vs. bad debt
A widely reported lack of financial education provides a backdrop for concerns about rising consumer spending. On top of coming last in a recent global financial literacy poll, South African schools recently dropped the mathematics pass mark to 20% in a potentially misguided bid to tackle the country’s serious problem with numbers.
This troublingly low level of mathematics and financial knowledge manifests in a range of ways, typically creating uninformed consumers who do not have the understanding to manage their finances responsibly. From failing to take note of the fees and interest rates charged on financial products, to using credit inappropriately for luxuries, a lack of financial education is at the heart of South Africa’s debt problem and low levels of personal saving.
Understanding the difference between “good” debt and “bad” debt is one lesson which the country desperately needs to learn. Many South Africans continue to use credit to fund luxuries such as holidays, Christmas gifts and shopping sprees instead of for long-term investments such as education. Others take on credit without the ability to meet repayments, triggering a debt spiral. You can learn more about how to distinguish good and bad debt using Wonga.co.za‘s new ‘Money Academy’ resource.
Even without rising levels of consumer confidence, it’s important to counsel caution when it comes to Christmas spending. With relatives to entertain, youngsters to treat and thoughtful gifts to reciprocate, it’s easy to lose your grip on your purse strings at this time of year. However, consumers are strongly advised not to use credit to fund their Christmas.
Instead, cutting back on luxuries, getting rid of unnecessary extras, reducing expectations and even taking a more humble “handmade” approach to the festive season will ensure you avoid coming out of the festivities without a scary-looking debt to your name. After all, this time of year is stressful enough without needing to worry about plunging yourself into a debt spiral.
This Christmas, cut up your credit card, shove your store cards in the shredder and focus on creating a celebration which is all about the great things you have (like friends and family!) – not the finance you don’t.
Have you ever used credit to fund Christmas purchases? Do you think the Government was right to lower the mathematics pass rate? Have your say and share your story below.