Debt and the management of personal finances

[摘要] English: High personal debt levels, as well as low savings ratios, seems to be the normrather than the exception in most developed countries and South Africa isdefinitely not excluded from this growing phenomenon. After the deregulation offinancial institutions in the 1980s, personal debt levels have grown substantiallyand savings levels have diminished to a fraction of what is necessary for healthypersonal finances, for the reason that these two variables are in inverse ratio toeach other. Excessive debt and low savings do not only affect the individual, butalso employers, as well as the country's overall economy.Due to excessive debt individuals can experience destructive financial failuresuch as broken homes or divorce, stress, underperformance at work,deterioration of financial health and bankruptcy. All of these consequences ofexcessive debt and low savings have damaging effects on the quality of life ofthe individual. The personal aspects of an individual's life will also influence hiswork, and therefore his employer, negatively. Low productivity, absenteeism,organisational commitment and work-time used, all have a negative impact onthe employer and therefore also the economy. Firstly, it affects the economyindirectly because of low productivity of employees. Secondly, it affects theeconomy directly by influencing economic variables such as investments,inflation, interest rates, the value of the rand and overall economic growth.A lack of basic financial management knowledge is one of the main reasons whyindividuals tend to make bad financial choices. Gender, age, income andeducation level could all impact on financial literacy and the effect that this couldhave on the personal finances of the particular individual.This study aimed to acquire information regarding the debt managementpractices of all enrolled students attending management programmes at theUniversity of the Free State's School of Management during 2005. Thesecondary objectives also included were to evaluate the importance of financialliteracy and effective personal financial management, to determine the differentsources of debt used, to ascertain the extent of household debt accumulated andthe percentage of disposable income spent on each form of debt, to determinethe extent of savings by individuals and to assess the impact of excessive debton stress and productivity in the workplace. In all of these objectives the fourdemographic variables, namely gender, age, income and qualifications, weretaken into consideration. The target population consisted of 425 enrolledstudents for 2005. It was decided to make use of the whole population and thatdecision eliminated a representative sample. Two hundred and eighty sixstudents completed the questionnaires.The results showed that the total average percentage paid each month on debtequals 62,1%. In general terms that means that 62,1% of all available disposableincome goes to the repayment of debt, leaving only 37,9% of the disposableincome for general monthly expenditures and savings. According to the 2006-figures the household debt to disposable income ratio is 73%, with 28% of thesalary not spent on debt repayment.High levels of dissatisfaction were detected among the respondents concerningtheir knowledge of personal finances, perceived control of personal finances,confidence in managing money and making investment decisions; they wereconcerned about their debts, savings and whether they had adequate retirementfunds; they were also pessimistic about their financial future and experiencedhigh levels of financial stress that interfered with their daily responsibilities. Therewere also high levels of poor financial management in not setting money asidefor savings or retirement, not budgeting and not repaying credit cards in full toavoid financial charges.The respondents will be able to live an average of 5-6 months on their savingsonly if they should not be able to work. The main reason these individuals are notsaving is that they feel that they do not have enough money to save (74,3%),while a staggering 13,2% indicated that they have not thought about saving.Individuals who do not feel in control of their personal finances were found tothink that they would not have enough money on which to live throughoutretirement; they feel pessimistic about the future and experience extremefinancial stress; and they do not follow a weekly or monthly budget.

[发布机构] University of the Free State