CIKO THOMAS: It's time to reorientate SA's approach to debt - even if we have more cash in our pockets

Economic indicators such as growth data, inflation, interest rates and administered prices such as fuel costs are notoriously fickle and cyclical.

One moment we seem to be languishing at the bottom of the trough for periods that, to the hard-pressed consumer, always feel almost indefinite, the next we're riding the crest of all indicators suddenly coming sunny-side up, for what always feels like a short-lived period of reprieve. 

Recently, the Reserve Bank governor and the Minister of Finance have taken turns at the podium to confirm that we currently stand at that very rare moment of confluence of almost all indicators looking up for the average South African consumer. After nearly three years of climbing steadily, inflation is finally receding and in September hit 3.8%, its lowest mark since March 2021 when it was at 3.2%. 

A key driver of this welcome inflationary reprieve has been the downward trend of fuel prices, which had, until the marginal increase at the beginning of November, been on a four-month streak of decreases. 

For the first time in a while, the central bank is so confident that it has broken the spine of the latest inflationary curve, that it has in September, and for the first time in four years, cut its repo rate by 25 basis points.

For the hard-pressed consumer, this translates to a significant saving on monthly interest paid on debts such as mortgage bonds, vehicle finance and other loans, and therefore a few more Rand in the pocket every month. 

The other notable cash-in-the-pocket development for the consumer has been the coming into effect in September this year, of the two-pot retirement system, which allows individuals with retirement savings to access a portion thereof pre-retirement (1/3 of contributions per financial year). In its modelling of a high withdrawal scenario, the South African Reserve Bank estimates that household disposable income could be boosted by up to R79 billion this year. 

The enthusiastic uptake (more than R21 billion by late October) reveals the extent to which consumers have been in need of some liquidity in their personal finances.

Cumulatively, the abovementioned trickles of financial reprieve have the effect that many working South African consumers will likely have a decent amount of liquidity as we approach this year's festive season. 

Some much-needed cash in the pocket will not only help folks enjoy a decent festive season but will also help many undertake long-deferred personal projects such as house and vehicle purchase deposits, renovations, school and university fee payments, weddings, debt reduction and the like.

It will also stimulate that side of our economic growth that is driven by household consumption. 

SOME HOME TRUTHS

In its own way, this moment of financial reprieve also presents the opportunity to centre financial education and awareness-raising. We should, however, resist the temptation to be preachy, condescending and sanctimoniously assuming to know what ordinary folks will do with their two-pot savings withdrawals, for example.

Rather, a constructive approach, I would submit, entails re-emphasising key home truths about financial management in times of a windfall. 

At the heart of this approach is emphasis on prudence and discipline in our personal finance management. As a starting point, and with the staggering, oft-cited figures of high household indebtedness in mind, we would do well to have debt as a core focus in this period.

Practically that means drilling in the discipline of taking up debt only where it is absolutely needed. 

It also means using what windfall we may realise from such sources as a withdrawal from the two-pot system, bonuses, dividends and stokvel year-end payouts, to reduce debt. More expensive debt such as unsecured personal loans, credit and store cards should be in our immediate cross-hairs for significant reduction, if not elimination. 

Equally critical is the discipline to jealously guard one's credit record both in times of temporary reprieve or windfall, as well as in times of a steep economic slog. 

WE NEED A REORIENTATION

To achieve this, a reorientation of our approach to debt may be needed, which would centre the personal responsibility one undertakes when signing up for debt and approving the settlement thereof through monthly debit orders. 

It would also place the sanctity of the contracts we sign to obtain debt, at the heart of how we approach its repayment through debit orders. This in turn would be motivated by a realisation of the continued importance of maintaining a good credit record, even in the midst of a good economic cycle.

A good credit record is nothing short of a personal asset, as it unlocks the ability of lenders to extend credit to us, especially in times of crisis or emergencies. 

This argument is not oblivious to the reality that even in the midst of a good financial cycle, shortfalls can occur, affecting one's ability to honour their monthly obligations. Inability to honour debit orders for a month or two is not where the issue lies. The issue lies in allowing those debit orders to go unpaid (bounce), without reaching out to one's creditors and making the necessary arrangements to defer the payment to a later date or pay by alternative means. 

Creditors understand that making a deferred or alternative payment arrangement amounts to honouring one's contractual obligations, and therefore tend to be more amenable to that conversation than many realise. 

A CAUSE BIGGER THAN OURSELVES

The last, but equally important home truth we must not shy away from is the value of saving as much as one can under all financial seasons, but especially so in times when one has access to some excess cash or a windfall. 

There's a voluminous body of scholarship and commentary that has, over the years, lamented the country's poor savings culture. So, far from regurgitating it, it perhaps suffices for me to make the case for saving as an act that is not only personally gratifying and goal-advancing for the driven individual saver, but one that in its own way binds us to a cause bigger than ourselves. 

See, it is said great nations become great nations because their citizens save, and have a savings culture inculcated in their national psyche. The example of China, whose transformation from a poor country to an economic superpower, unfolded within the lifetime of many who are still alive today, has high personal and national savings rates as one of its recipes for success. 

Countries like China and Singapore, among others, have reaped the dividend of their high domestic savings flowing into their capital markets, thereby catalysing growth. 

South Africa already is a great nation. But we would be an even greater nation if we individually, in our little corners, diligently and perhaps quietly, started getting into the discipline of personal savings, no matter how small the amounts we are able to put away. 

It is one of the most important pillars of societal construction. 

And there's no time like now, while we're about to “December” under the arguably fleeting oasis of momentary financial reprieve, to start living out these home truths. 

Ciko Thomas is Nedbank's Group Managing Executive for Retail and Business.