Consumers in unstable financial positions thanks to easy credit access

In recent years households have been able to access credit with an ease which have left many in precarious financial positions.

Last week Marc Sternberg, MD of Spark ATM Systems, one of the main distributors of ATMs in South Africa, warned that due to the ease with which households have been able to access credit, many have been spending way beyond their means.

There has been widespread concern over the recent rapid growth in unsecured credit and the debt position consumers are in because of it. Figures indicate good reason for the concern: the National Credit Regulator have shown unsecured loans to have a growth of nearly 60% in quarters three and four of 2011, while the Reserve Bank have data showing unsecured lending rise by more than 29% in March compared to the same time last year.

According to Sternberg, this rise is due to a massive increase of the cost of living with wage increases failing to keep up with it. He stated that much of the unsecured credit being given to consumers was being used to pay for daily living expenses as well as discretionary items.

One of sources of data referred to by Sternberg was the financial wellness index which was launched last month by Momentum, the Bureau for Market Research and the University of South Africa’s Personal Finance Research Unit.

The index showed:

  • Almost 5% of households are in an “anchored unwell” category. A debt position where they have very little chance of clearing it without major outside aid.
  • 48.5% fall into the “drifting unwell” category. These are households whose debt position is unstable.

While there is no easy solution, Sternberg does offer the wise advice that households should learn to budget their expenses to avoid debt and becoming part of these startling statistics.

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