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Keep It In The Family – Can You Break The Curse Of Inter-generational Debt

Crippled by debt and struggling to make ends meet is a fair way to describe life for thousands of South Africans at the moment. In fact, the Reserve Bank has reported that the household debt to income ratio stood at 73.7% for the first quarter of this year. This is a staggeringly high number as it suggests that three quarters of an individual’s income goes towards paying debt. 

But if we’re regularly turning to credit and loans how can we ever hope to start to build financial security and wealth for ourselves, our families, and future generations? “It’s a situation that needs to be addressed from two angles”, says Saul Gur, Financial Manager at Teljoy. “The first is that we need to understand how debt holds us back and hampers our ability to get ahead financially. The second thing is to actively seek alternatives that help us sidestep the debt trap but allow for our needs to still be met.”

Normalising saying no to debt is easy to say in the middle of a pandemic when salary cuts and job losses are on the rise; much harder to actually do.

For instance, life happens and then the fridge packs up, in the same week that the washing machine finally surrenders, and turning to credit to have it fixed or replaced seems to be the only option. But now, at a time when consumer debt is at an all-time high, we need to seriously consider less expensive and more flexible ways to meet these needs, without incurring the kind of debt that our grandchildren will still be paying for. 

Rise of the rental 

One alternative that’s already popular in more developed markets such as the US and UK is the concept of the rental economy. It’s touted as a normal means of having access to consumer goods, including furniture, appliances and electronics, without having to buy them on high interest credit or hire purchase. The rental model, popularised locally by Teljoy, offers customers the option of renting on a month-to-month contract, eliminating the debt burden of an upfront credit purchase. 

It’s a model that offers access and ownership, together with far more flexibility than buying a product outright on credit, not to mention the after sales service which you get while renting. Most significantly, it removes the risk and cost of debt from the equation. “Consumer goods like appliances, electronics, and even furniture, need to be replaced every few years due to wear and tear, so it makes sense to rent rather than buy”, Gur believes. 

Internationally, companies like Aaron’s in the US and Rent2Buy in the UK have popularised the rental model while individual brands, including Ikea and H&M, are following suit, offering their goods as a rentable service.

Flexible options

Normalising rent-to-own is one way to ease the debt burden choking thousands of South Africans. 

Normalising our expectations around how our money can work better for us, in the long and the short term, is key to building generational wealth. “There’s an old English idiom that says ‘look after the pennies and the pounds take care of themselves’. That’s an approach that individuals with a wealth mindset tend to follow – they make every penny count by counting every penny,” Gur believes. 

Building generational wealth starts by normalising saying no to debt and opting instead for cheaper, more flexible options.

A recent survey by fintech platform PayCurve found that nearly 80% of South Africans are forced to turn to unsecured loans to meet their monthly financial obligations. “Until we discover alternatives to high-interest debt and excessive fees, the kind of generational wealth that will elevate generations will continue to elude us,” Gur concludes.