The Why behind the Buy
This is the first in a 3-part blog on the subject
Among the challenges people face in 2016, spiralling debt is likely to
reach new heights, given increasing interest rates, escalating petrol prices and
the high cost of food. Sadly, many people live in denial, as the ease of credit
sustains their lifestyle and they believe their debt is being managed.
People experience uncontrolled levels of debt for two main reasons. These are
unexpected events or unforeseen circumstances and, the confusion between
wants and needs.
The first reason is simple and straight forward. Unforeseen circumstances
would be medical emergencies, job losses, car repairs; home emergencies like
burst pipes, flooding, and electrical faults. One trip to the hospital and without
a very good medical aid could set you back by a huge amount and you could be in debt for life.
(This is not a place you want to be in)
In the second category there are number of behaviours that result.
You may borrow for something that is a perceived need – at this stage you have
no debt – and then when you see how easy it is to borrow, you borrow for the
next perceived need until there is complete confusion between wants and
needs and you have no qualms about borrowing for everything your little heart
desires. In no time at all you will be way over budget and entering into a
perennial cycle of buying things you cannot afford.
When you walk through a shopping centre in any big city, mid-morning any day
of the working week, you will find it thronging with people spending their
money. This is further evidence of the consumer culture, stimulated by
constant retail activity and the spend, spend spend psychology where the
accumulation of things is a function of society and an extension of personality –
to have is to be.
We all want success and want to look the part. The innate desire to keep up
with the Jones’ is quite common. A feature of society is to identify yourself in
or aspiring to be in a particular class whether its middle or upper class and you
want to live up to that, so you spend to match the lifestyle, whether you can
afford it or not.
The tendency to want more and to want it now is a result of economic myopia.
Many people are financially shortsighted only glancing near term time horizons.
This is particularly common among the youth and the financially
unsophisticated consumer. Ordinary consumers find it difficult to plan for their
financial future or to envisage the future consequences of current expenditure and a massively overspent credit allowance.
FINANCIAL PHOBIA AND SPIRALLING DEBT
Being in debt and facing your finances head on, can be an emotional
experience for many, resulting in financial phobia. Sufferers prefer not to think
about their personal finances. If they do, it tends to bring on feelings of
anxiety and guilt for most people and for some, even physical illness is
The end of the line for debt is a civil judgement, which you want to avoid at all costs. Business Tech reported last year that the debt management firm, Debt Rescue showed that South African consumers owed the bulk of their monthly salaries to creditors.
The group found that consumers owed as much as three quarters (75%) of their monthly pay to creditors, a 31% jump in new clients in need of debt rescue in the first six months of the year.
“This is clear evidence that a growing number of consumers are getting ever deeper into debt and need help from debt counsellors to get out from under the debt mountain most of them had accumulated over the past years,” said Debt Rescue CEO, Neil Roets.
It also reported that 57 % of consumers were struggling to pay their home loans while almost 59% of consumers were slayed by credit card debt.
In addition 39 of consumers who have a bank accounts did not know what interest rate they were getting on savings accounts and 22% had no idea of the cost of bank fees.
South Africa is a microcosm of the world and statistics are similar around the globe.
Debt is not exclusive to low income earners and the profile of the debtor is
changing and it is becoming more common for the usually responsible consumer
with good credit ratings to find themselves slipping into debt.
- I hope you enjoyed today’s information. There’ll be more in the next few days
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