Ernest Mabena,Benefits Counsellor at the Sygnia Umbrella Retirement Fund
When people experience financial difficulties, subsequent conversations often focus on numbers, such as outstanding balances, interest rates or monthly repayments. But financial distress is rarely just a mathematical problem.
Our beliefs and behaviours around money are influenced by emotions, habits, life circumstances and personal history. Two individuals with similar incomes can have vastly different financial outcomes. The difference is not always how much they earn, but how they respond to financial pressure. Missed repayments and growing debt balances are often symptoms of deeper issues, like poor budgeting habits, emotional spending, gambling and significant unexpected life events such as illness, divorce or unemployment. Understanding the behaviours that contribute to debt can be just as important as understanding the debt itself.
Many people view debt as a personal failure rather than a financial challenge that has compounded over time. Unexpected life events, poor financial habits and loss of income can all contribute to financial difficulties, but individuals may blame themselves. Some people respond to financial stress with avoidance: account statements go unopened, bank balances aren’t checked, difficult conversations are postponed. While avoidance may provide temporary emotional relief, it also allows financial challenges to grow unchecked. Over time, debt levels increase, repayments are missed, savings and retirement funds are depleted and personal relationships become strained.
Feelings of shame can lead people with debt to hide their financial struggles from partners, family members and trusted advisors. They don’t ask for help, instead hoping that circumstances will improve through a salary increase or bonus, a new employment opportunity, investment returns or some other form of unexpected financial windfall.
While optimism is generally seen as a positive characteristic, such delays can make financial challenges more difficult to resolve. Seeking assistance should not be viewed as an admission of failure – it is an important step toward regaining financial stability. The longer a financial issue remains unaddressed, the fewer options are available to resolve it. Lasting improvement often requires both a financial solution and a behavioural solution.
A range of support options are available, which will differ from person to person according to their circumstances. In many cases, a combination of financial education, behavioural support and professional advice may be required to work out a budget and make a plan to deal with accumulated debt. Employers may also offer wellness initiatives for their employees.
The sooner financial challenges are identified and addressed, the more options are likely to be available. In many cases, the most difficult step is simply acknowledging that help is needed.
The gambling trap
Financial distress is sometimes linked to gambling, which can seem to offer an easy solution to the very problem it creates. People with gambling-related debt may believe that a big win is just around the corner to help them restore their finances.
Unfortunately, this belief just delays intervention and encourages further risk-taking. As debt levels increase, the need for a bigger win grows, leading to an impossible cycle in which increasing losses are addressed with more gambling for a big win.
A particularly concerning warning sign is when gambling ceases to be entertainment and is viewed as a financial strategy. Relying on future gambling winnings to resolve financial difficulties is likely to worsen an already difficult situation.
The impact on retirement outcomes
The kind of financial distress described above will affect more than just your current financial situation; it can also have a significant effect on long-term retirement outcomes. People under financial pressure may withdraw their available retirement savings, cash in long-term investments, reduce their retirement contributions and/or stop saving altogether.
These decisions can have a lasting effect on retirement readiness, particularly because retirement savings benefit from long-term compound growth. Interruptions to saving, even for relatively short periods, are likely to materially affect future retirement outcomes. So addressing debt early is about improving current cash flow and protecting your future financial security.
Conclusion
Financial distress is rarely driven by numbers alone. More often, it is influenced by behaviour, emotions and circumstances that develop over time.
Whether the underlying cause is overspending, poor financial habits, unexpected life events, gambling-related losses or a combination of factors, lasting solutions require more than simply reducing debt balances. The behaviours and circumstances that led to this situation must also be addressed.
The first step to financial recovery is often the hardest: acknowledging the problem and asking for help. Seeking professional assistance is not a sign of failure. It is an important step back to financial stability – and the sooner action is taken, the more options are likely to be available and the greater the opportunity to protect both current financial wellbeing and future retirement security.
ENDS
