Indebtedness; the devil among us

Financial statistics released by Bank of Botswana this week display a picture where households, whose real incomes are constantly being eroded by a flagging economy, are struggling to pay off their debts.

According to the statistics, total past due loans – ones tainted by arrears - increased significantly by 52.9 percent to P3.2 billion in the year to December 2014 while non-performing loans also grew significantly by 12.1 percent to P1.6 billion as at December 31, 2014.

From the P45 billion that commercial banks have lent out as at June 2015, the lion’s share, 58 percent or P26 billion, has been taken up by individuals. Most worrying for financial planners is that, of the total debt owed by households, over P16 billion is unsecured by assets such as property and motor vehicles.

Added to the P26 billion that households owe commercial banks are salary advances to employees, credit from burial societies, metshelo and other informal credit arrangements, as well as commitments for furniture and other high purchase schemes. In addition, the P3.2 billion in arrears to banks does not reflect unpaid water and electricity bills as well as arrears for furniture and other high purchase schemes.


In an environment where the economy is stalling and chances of a quick recovery are not in near sight, the numbers on indebtedness are cause not just for concern but also for tangible and hasty action. Data garnered from surveys done by financial experts proves that a significant chunk of these debts are accumulated for consumerist purposes, often leaving debtors with huge obligations they cannot afford to service.

Due to lack of financial literacy, financial pundits say most households find themselves swarmed in debt due to lack of capacity to assess one’s assets and debt, incomes and expenses and then put a plan together to get of out of debt.

As we observe the September 7-11 Financial Planning Week, we implore individuals and financial planners to join hands and up the ante in conscientising the society about the need to avoid high indebtedness, which some experts have rightfully labelled ‘the devil among us’. During the week and the ensuing days, financial planners aim to raise awareness of the importance and benefits of financial planning with a qualified professional, encouraging households to take control of their future and achieve their goals through sound financial planning.  As we approach the festive season, temptation will once again be flying high to plunge into another period exuberant spending.  Financial planners should caution households that even as banks and financial institutions start dangling the easy-credit carrot ahead of the festive season, budgets that do not balance should not be knocked into shape by all means available from easy loans to pawning possessions.

Today’s thought

“Over indebtedness is killing and crippling our people and we need to plan how to exorcise it from our lives.”

 

- James Fern,

certified financial planner and senior partner at SCI Training

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