Unemployment and consumer debt: Fueling the fire

Unemployment and consumer debt seem to go hand in hand in many ways. Now while that may seem obvious, it also raises the question of how they secured a loan without income- this is where the biggest issue comes to light.

With the final quarter of 2016 showing an unemployment rate of over 27%, around 6 million individuals, we have a huge amount of people who cannot find legal means of financial assistance as they have no obvious way to pay back the loan. With such a large group of people without work, many run to illegal means of getting a loan, usually through a loan shark. While this may seem to many to be the same thing, loan sharks do not abide by the law and as such will not abide by it when collecting the money either. This puts many in a tough situation. While a bank or lending institution would check your credit and ability to pay back the loan responsibly, loan sharks will ignore this and instead set an insanely high interest rate knowing full well these people who come to them have little to no other option. This puts the consumer in a detrimental position.

A vicious cycle of sorts, consumers need work to secure a loan and even debt counselling is out of reach without consistent income. This limits the choices for many. This in essence keeps these individuals in the debt as the interest from loan sharks is too much to pay back, and as illegal lenders they are not governed by the laws of the National Credit Act.

One of the main sources of this issue seems to stem from young adulthood, with little to no financial literacy being taught at schools before these individuals step out into the world of credit and lenders. Without a full understanding of finances, many spend recklessly and end up in debt, without the proper education regarding finance, they must learn the hard way – and when the hard way involves a loan shark, there can sometimes be no way out for the consumer.

These issues fueling the fire of unemployment and consumer debt in South Africa.