Tourism, Cars, Traffic

Wednesday, 06 May 2009 14:38

The rich are most in debt. Experts warn: stop spending, pay off debt - the worst has yet to come

{pp}the solutions pose challenges to labour & land redistribution
The rich are the most indebted and banks are reporting a 50% increase in bad debt as South Africans now owe R1 139bn - R8,20 of every R10 a South African earns goes to pay off debt.
Or should, but figures from the Bureau of Market Research (BMR) at Unisa show that more can’t pay and are sliding down a steep slope into financial despair. Liza van Wyk of executive management skills training group, AstroTech says, “we are seeing enrolments in our financial courses rise and more executives asking not just how their companies can cope, but how they can manage their way out of serious debt.”

The Unisa research shows that the income group with the biggest debt burden earns between R500 000 and R750 000 a year. Their debt represents more than 135% of their disposable income and they use 34% of their disposable income to pay back debt. “Our Finance for Non-Financial Managers course is consistently jam-packed, we’re seeing high interest in courses on Corporate Budgeting as well as our Risk Management and Strategic Management courses,” Van Wyk said. “Our skills trainers are reporting the most attentive delegates yet in financial courses, with many afterwards asking for personal guidance – and these are the cream of South African business, government and parastatals.”

Wayne Ford, AstroTech’s top financial management trainer and a highly-respected management consultant said the biggest challenge facing South Africans and global financial markets was pervasive over-spending. “The American plan to cut rates in order to fuel credit spending was fine in the very short term, but it was poorly judged credit spending that caused their problem in the first place. You don't have to be a genius to realise that the credit boost they are creating now (which is being funded by increasing the federal debt) will lead people into further debt, which will have to be paid for in the future by families who can't afford their existing levels of debt now. This is like treating gangrene with morphine - although it has stopped hurting it is still there, it is getting worse, and if left untreated for much longer it will certainly kill you.” Challenges for labour & land redistribution Ford said that “Creating jobs is very important, but those jobs must be sustainable. If we create jobs by allowing customers to buy on credit then those jobs will disappear as soon as the next level of credit-seizure is reached. Also, if jobs are created by allowing families to get into debt, then the cost of prosperity will probably exceed the prosperity itself, and the whole cycle will continue to spiral negatively. These negative spirals kill entire economies - the USA is close to the edge right now, and many developing nations have long since slipped over the edge. “

We need to increase exports by reducing manufacturing costs by improving productivity vs wages.  It would help if we could break our dependence on imported oil and food, as we could then happily devalue the currency. This requires a massive focus on green energy sources and better support for efficient corporate farms as opposed to land redistribution to subsistence farmers who can barely feed their own families, far less entire towns. The example of Zimbabwe is very relevant here. “A growing economy needs citizens to save. This makes banks cash-flush, which eases the cost of borrowing and makes capital available more cheaply. The short term solution for individual families is the following:

a. Stop spending.
b. Use all available cash to pay off debt.
c. Stop spending.
d. Use less fuel - switch to public transport where practical.
e. Stop spending.
f. Grow some of your own food in the back yard.
g. Stop spending.
h. Trade in your car for the cheapest car you can find.
i. Stop spending.
j. Get solar heating installed as soon as you can afford it, and meanwhile save power with low-energy lightbulbs.
k. Stop spending.
l. Get a second job.
m. Stop spending.

Contact information:
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Tel: 011 646 7637 or 021 762 2656

Charlene Smith Communications (Pty)Ltd
Contact: Leila Beltramo
Email: This email address is being protected from spambots. You need JavaScript enabled to view it.
Tel: 021 762 2656

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