Everyone knows how Gordhan feels

Cape Town - In his Budget Speech the finance minister was wrestling with a national debt challenge. Over an extended period of time our government has spent way more than it earns in revenues and, as a result, debt servicing is now costing the treasury R169bn a year.

The vast majority of South Africans are in the same space.

According to World Bank figures, we are the most indebted nation in the world with 86% of people over the age of 15 having some kind of debt. There are plenty of other alarming numbers - including 75% of our disposable income going to pay off debt - and only one in four of us having any money to spare one week after payday.

This level of indebtedness has a back story which is important to understand.

Prior to 1994 the majority of the nation never had access to formal lines of credit and lacked education in its use. After we achieved democracy, access to credit was opened across the board with both positive and negative consequences.

Getting loans beyond the limitations of stokvels and the harsh interest rates of the mashonisas (loan sharks) fuelled the extraordinary rise of the middle class and drove the growth which reached its peak around 2008.

But much of that money was borrowed on an unsustainable basis, or was used for unproductive purposes with a minimal  understanding of the core divide between good debt, which enables the building of an asset base, and bad debt, which usually meets a want that may not contribute to building wealth.

No widespread savings culture was ever developed so the boom dividend was largely spent on debt servicing.

This meant that when the macro-economic tide turned against us, very few had anything to fall back on.

The obvious physical consequences of our high debt levels are widespread impoverishment and an inability to improve circumstances. But the psychological damage is also enormous and impacts on families, entire communities and national productivity. 

Many positive things have been done by government, the regulators and the courts to rein in irresponsible and usurious lending practices but no amount of regulatory measures can enforce responsible behaviour on the part of individuals.

Somehow we have to broadly entrench the concepts of basic budgeting and planning which lead to personal financial wellness. We also need to have the ability to exercise patience instead of reaching for instant gratification.

Financial services companies have a responsibility here, as do employers who must assist their workforces in tackling the burden of debt. 

At government level, the solution lies not with the finance minister but with his counterparts in basic and higher education. Financial wellness must be taught effectively at schools and varsities. There’s simply no excuse for the next generation failing to understand how to use money wisely.

And, thinking of higher education and debt, the finance minister announced some welcome steps to improve the chances of students from lower income homes achieving a degree without getting a crippling debt burden at the same time. However, this additional R5bn could be wasted money unless the economy generates jobs for those who do emerge from the tertiary education system.

As we push more people into degree courses we are in grave danger of generating serious underemployment - the term for a significant number of workers over-qualified for the positions they are forced to take, if they can find any jobs at all.

We must fix the end point of tertiary education as urgently as we are tackling the starting point. Government and industry need to generate radical solutions to drive up employment opportunities and to build businesses that need the skills that the varsities supply.

- Visit our Budget Special for all the budget news and in-depth analysis.

* Khanyi Nzukuma is chief executive officer of Metropolitan Retail.


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