Consumers in South Africa have been urged to spend wisely over the festive season to avoid accumulating unbearable debts.
According to Frank Lenisa, Director at credit bureau Compuscan, there is a tendency by consumer to overspend on credit over the festive season, something that has plunged many into financial mess.
Compuscan data over the past three festive seasons show a trend in consumer behaviour that prove a high number of credit accounts are opened in the month of December, particularly clothing and furniture accounts.
“Regardless of the financial bracket that consumers are in, they need to be wise with their spending on credit especially at this time of year when November or December salaries need to stretch well into the New Year,” said Lenisa.
He added the number of consumers defaulting on credit cards is on the rise and could increase further over the festive season as consumers spend more on gifts, holidays, celebrations and food.
“It can be extremely tempting for consumers to turn a blind eye to their financial standing at this time of year and get caught up in the mode of festive spending, particularly as shops lure consumers in droves.”
According to the Econometrix report released in August, South African households have incurred high levels of debt.
As at the end of the first quarter of 2014, household debt as a percentage of disposable income was recorded at just under 75 per cent.
“A debt to income ratio that is considered healthy is anything below 37 per cent as long as a steady income is being earned. What this high level of household debt means for consumers is that they need to focus on decreasing their debt and making a greater effort to put aside savings,” said Lenisa.
As it stands, South Africa’s saving rate is already a cause for concern considering the national gross savings rate, as a percentage of gross domestic product (GDP), was recorded at a mere 14.6 per cent as at the end of the first quarter of the year, according to the South African Savings Institute.
Lenisa advised consumers to avoid falling into financial stresses through prioritising spending, arranging to pay their accounts via direct debit order, keeping track of the their spending on a daily basis and keeping aside approximately 10 per cent of their income for emergencies.