ALFRED RAMOSEDI: Employers can facilitate financial solutions to indebted employees - and not just by paying a salary

I have two questions for the private sector: should corporate South Africa take the issue of employee indebtedness seriously enough? And is there adequate understanding of the impact of the dire economic situation on millions of workers – those very individuals who are meant to be powering the economy?
 
Consumers are assaulted every day by the challenges inherent in living in this country, headed by load shedding and water availability. Financial pressure is a trial for many, but in all fairness, the word challenge doesn’t effectively address what should be seen as a significant crisis impacting millions.
 
In the relentless struggle for survival, the financial wellness battleground contends with the myriad of other issues faced by consumers. The scourge of indebtedness means countless families are forced to juggle rent, school fees, groceries, and transport. Hobson’s choice means they can have some, but not all.
 
Indebtedness wreaks havoc on millions, rendering them unable to meet even the most fundamental needs. It’s a cruel equation where something always gives - a skipped meal, an unpaid bill, a missed day’s work, or a child’s education sacrificed at the altar of survival.
 
The day after payday, a haunting spectre looms - absenteeism spikes as some employees scurry to unscrupulous lenders, desperate to bridge the gap until the next payday.  But these loans, with their insatiable interest rates, only tighten the noose, leaving monthly wages stretched thinner than ever.
 
Dozens of forward-looking companies have realised that while employee financial wellness may not be a priority, it has a bearing on workers’ mental wellbeing, without which morale and productivity are affected. Join the dots.
 
Working in collaboration with employers, there is a real chance to break the cycle of despair: a money management solution that combines the triplicate of financial services provider, employee, and employer. 

In South Africa, the prevalence of over-indebtedness has reached alarming levels, with an FNB survey showing it takes an average of just five days for middle-income earners to spend 80% of their salary, leaving a mere 20% to last till the next payday, with 30% of their salary servicing debt. In the case of employers in lower income brackets, many are so burdened by debt to the extent their bank balance is cleaned out within hours of being paid.  

Raising wages across the board isn’t necessarily the right answer – it has implications for inflation increases, and not every company is financially able to increase payroll costs.

Insights based on Bayport’s previous 15 years of offering debit order loans clearly showed that an over-reliance on this model was unsustainable. While these products have a role in providing short-term relief, they do little to address the underlying issues of over-indebtedness.

Traditional lending models are simply insufficient to address broader consumer needs: true financial empowerment requires a holistic approach that goes beyond personal loans to a range of offerings, including debt consolidation and education.
 
The answer is to tackle the core of the problem by developing a managed programme designed to address over-indebtedness and promote financial wellness among employees of clients who have acknowledged the importance of financial wellness within their workforce, and who have adopted a structured programme that rehabilitates indebted workers. 

This is key as without rehabilitation, consumers are constantly circling the indebtedness drain. Central to this, however, is demonstrable financial education to empower employees with knowledge about managing their finances and lifestyle - effectively enabling employees to manage their finances, within their means. 
 
Nonetheless, the root burden of over-indebtedness must first be removed. 

Bringing financial solutions directly to the workplace, and creating a supportive environment where individuals can seek immediate guidance and support without having to navigate external channels, is a step towards achieving this.
 
Marketing this solution within the employer context ensures that individuals are aware of the support available to them by both financial service experts and the employer. 

The key to reducing their immediate debt burden is taken over by the financial services company customised to each specific case depending on the exact nature of the debt. By individually negotiating settlements, sometimes up to 50% with each creditor, a substantial reduction in the debt burden can be achieved. 

This is a win-win for all parties: the creditors who were otherwise unlikely to ever receive anything get a negotiated reduced payment. The individual now has an improved credit rating and affordable monthly instalments which literally give them more available cash to cover living costs, and the employer has a once-again productive, clear-headed employee.
 
Empirical evidence has been amassed demonstrating the effectiveness of this approach, including significant reductions in debt obligations, improvements in credit scores and a decrease in stress and anxiety. 

One of the most significant measures of success is to facilitate previously hopelessly indebted individuals to access finance to reach their dream of home ownership.
 
Empowering individuals to manage their finances effectively also helps stimulate consumption and investment, thereby fuelling economic activity. This ripple effect extends beyond the individual level, contributing to the overall prosperity of society and fostering a more resilient economy.

While it may not be an employer imperative to offer financial wellness support to workers, we believe that companies who do not take the issue of over-indebtedness seriously enough to do something about it are doing a disservice both to their staff, shareholders, and customers.

Alfred Ramosedi is the CEO of Bayport Financial Services.