Being a young South African in her late twenties, I am becoming increasingly worried about the phenomenon that is manifesting in our youth worldwide, youth indebtedness. The youth is becoming more and more indebted. The topic is a very broad one with many angles and many factors contributing to it. Factors such as society, race, and income are only a few that have been discussed when reviewing youth indebtedness. For the purposes of this article, I will not touch on the issues I have mentioned and how they play a role in debt accumulation. The topic will be on a high level analysis.
Firstly let us distinguish between two scenarios, as with many young people especially those who were previously disadvantaged, some debt is necessary, for instance, many are paying off study loans that were necessary if you really needed to get an education. With that in mind, some have had to take out loans to assist their families, siblings etc. So we can conclude that debt is not always a bad thing, it can help people achieve some things that they would otherwise not be able to.
There is however the second scenario, this is the type of debt that is accumulated to enhance your social standing. We are living in a society where success is measured by the cars we drive, the houses we live in, the clothes we wear and the circles of entertainment we are associated with. Everyone wants to keep up with this lifestyle. We are also living in a society where getting credit is as easy as sending a message with instant approval, add increasing costs to this and you have a recipe for youth debt. So what do I do, I can’t afford to buy that couch cash, I walk into the shop, and get that couch anyways. I ask to pay over a period of time and at an interest. I am not saying it is wrong to do so, but did I consider waiting three month, saving and getting the couch cash instead of paying the interest that we are being charged. Not many do that. We are even buying food on credit. It all does not make sense, but it is happening. The youth is falling into the trap of easily available credit. Some youth see their debt as being empowering, they feel empowered by their credit cards and education loans.
Most common sources of debt:
Others like credit cards, clothing accounts, furniture accounts and cell phone accounts
Many do not consider the implications of being in debt at a young age. For instance you might end up with a bad credit record, with no one willing to lend you money for more important things. A bad credit may also affect your ability to secure certain jobs. The stress that accompanies the inability to pay your accounts may have negative effects on your health. A person will have to downsize later on in life, families become affected because if you start a family with the burden of debt, your whole family becomes affected.
Some tips on reducing debt
If you already have loans, pay in extra. This will reduce your capital amount thus the interest that you pay will be lower. Your period will also be reduced.
Set out a limit for which you are prepared to buy on credit, for instance, rather save up to buy furniture, clothes, rather than buy them on credit.
Never use credit cards for entertainment, if possible, reduce your credit card li limit.
Whilst still indebted, purchase things that you need, not want. For instance, if you are spending too much on your vehicle, maybe it’s time to get rid of it, or trade it in for a cheaper alternative.
Draw up a monthly budget which will show your income against the expenditure and will be the tool you use to make sure you don’t have unnecessary expenditure
Learn about credit by visiting your bank, reading newspapers and financial magazines. Before you enter into a credit agreement, take time to ask yourself the following questions: How much will your monthly repayment be? What percentage will the monthly repayment take out of your monthly income? How long is the repayment term? What happens if you are struggling to pay and what assistance is available to you?
Find other ways to make extra cash e.g. weekend jobs.
Develop the habit of saving money.
These are just some of the things one can do to reduce debt. More can and should be done to address this issue amongst the youth. More research should be undertaken on this topic, covering a whole spectrum of factors.
Lungile Cindi is an aspiring entrepreneur, qualified and currently employed as an Economist. She resides in South Africa and has a vested interest in the development and empowerment of youth world wide.