Charnel Collins, CEO of National Debt Advisors (NDA)

“As we celebrate Family Day, let’s take the time to have important conversations with our children about money and financial habits.” – CEO at National Debt Advisors, Charnel Collins

With the recent interest rate hike bringing rates to 14 year high of 11.25% – already indebted South African families will need to take extra caution when incurring unnecessary debt this long weekend.

This is according to CEO at National Debt Advisors (NDA), Charnel Collins, who says that with the South African economy perpetually dwindling, debt has become an increasingly pervasive issue, with more than half of South African households owing debt. “The increase in interest rates on an already indebted nation is devastating,” says Collins.

She explains that it will impact the overall financial well-being of consumers and all types of debt – from credit card repayments to the repayment of a home loan. “As an example, in April 2022 consumers with a R1 500 000 bond over 25 years were paying R 11,330.00 per month – no deposit given. As of April 2023, they can now expect to pay close to R 3 644.00 more – bringing monthly instalments up to R 14,974.00.

In addition to this, Collins points out that SA’s inflation rate also recently rose to 7% for the first time in four months, “which will now see consumers having to shell out more for an average basket of goods – causing a knock-on effect for their pockets”.

Ongoing debt burden has become a significant source of stress for families

According to Collins, the financial and emotional strain of a growing debt servicing burden just to keep the lights on and food on the table, is especially significant for families. She points to the latest General Households Survey conducted by Statistics SA. The data reveals that 51% of South African parents have experienced financial strain affecting their family life. Financial experts have said that the crux of the problem lies in the lack of financial education within the household.

Collins agrees that financial know-how is a root cause. “While interest rates and the cost of goods are not things we can change, our financial decisions are largely within our control. Teaching children how to save and build good financial habits from an early age and demonstrating these within the household are critical – especially in tough times. “By passing on good money habits to our children, we can help them avoid the pitfalls of debt and build a financially secure future,” says Collins.

A crucial starting point is teaching children the difference between good and bad debt and how to manage credit responsibly.

With the introduction of easy-to-obtain credit cards and personal loans, credit has become increasingly accessible. “While credit can be a useful tool, not all debt is created equally. According to latest Eighty20’s Credit Stress Report for Q4 2022, the current balance on all loans is up 3.8% quarter-on-quarter, with increases across all loan products. Data from the report showed that the second largest percentage increase came from credit card accounts up by 7,2%. “This is a clear indication that taking on too much high-interest debt can quickly become unmanageable, leading to a cycle of debt that can be difficult to break,” she says.

Collins also highlights the importance of understanding the role of money within a family. “Setting mutual goals and working together to achieve them can alleviate financial stress and bring families closer together. Financial stress can put a strain on relationships, and it’s essential to have open and honest communication about financial goals, priorities, and spending habits,” she says.

Balancing money and family life can be a challenge, but it’s not impossible. Collins highlights key money habits parents should pass on to their children to safeguard their financial future:

• Saving: It is crucial to teach children the value of saving money. Encouraging children to save a portion of their allowance or chore earnings can help them develop the saving habit.
• Budgeting: Budgeting and money management are important life skills to learn. Parents can involve their children in the creation of a household budget and demonstrate how to allocate funds for various expenses.
• Delayed gratification: Delaying gratification can help children develop self-control and avoid impulsive spending. Parents can encourage their children to save for something they want rather than purchasing it right away.
• Comparison shopping: Teaching kids how to compare prices and find bargains can help them save money. Parents can teach their children how to compare prices and look for discounts by involving them in grocery shopping.
• Avoiding debt: It is critical to teach children about the dangers of debt and how to avoid it. Parents can teach their children about credit cards and loans, as well as the importance of paying bills on time.
• Investing: Teaching children about investing can help them understand how to make money grow. Parents can teach their children about different types of investments, such as stocks and bonds, and encourage them to open a savings account or invest in a mutual fund.
• Giving: Finally, parents can instill in their children the value of giving back. Encourage children to donate a portion of their allowance or volunteer their time to develop empathy and gratitude.

“Setting boundaries around spending, avoiding unnecessary debt, and practicing financial self-discipline can all contribute to a healthy financial situation and a happy family life,” concludes Collins.

ENDS