Five times more South Africans are affected by debt judgments than are contracting HIV/Aids daily, making the sheriff of the court a major figure in the lives of thousands of working people, according to an economist.
”Six hundred people a day are contracting HIV/Aids and people say that’s our national crisis. Five times as many people get debt judgments given against them,” Tradek economist Mike Schussler said on Tuesday.
”Yes, that’s 3 000 people a day getting into serious trouble for debt. You might not die from debt but people do get blacklisted and taken out of the economy — sometimes up to a decade or so, if placed under administration.”
On the surface South Africa has one of the better household debt situations in the world, lower than America, Germany Australia and a host of other countries. But that picture hides the millions of people who are in trouble.
”Do you see headlines saying 3 000 people taken out of the economy today? Are there educational programs to help people understand what they are getting into? No! This is a silent crisis.
People believe they are alone, when in fact they are not.”
Last Thursday, Stats SA released the latest summons for civil debt and the number of debt judgments that have taken place in South Africa’s courts.
In January there were 107 872 summonses issued for debt. Because of the summer holidays January is not as busy a month as November last year when more than 142 000 summonses were issued.
”But January this year at least showed a decline of nearly five percent over last January,” Schussler warned.
”But the longer term trend is perhaps a better indicator. In January 2003 there were 56% more summonses for debt than in January 1994. For 2002 as a whole there was an increase of 57% over 1994.”
Actual judgments tell the same story although the actual figures are lower than summonses the amount of judgments has grown 107% since January 1994.
”Here the actual January 2003 figure grew with 15% over January last year,” he said.
Schussler said his research tells him the crisis is costing the economy about R500-million a month — directly.
”Indirectly it could cost another R500-million or more a month in lost productivity and other costs — such as collection fees. Combined that a billion or so a month or R12 billion a year,” he said.
”If you are in financial trouble, the chances are that the person sitting at the next desk is too,” said Paul Slot, managing director of General Union, which specialises in working with employers to assist workers manage their debt.
Slot, who commissioned Schussler to conduct the study, said that as recently as 10 years ago most large South African companies offered their employees a range of tightly-controlled loan and bursary schemes.
These included loans for personal use, study, vehicle finance and housing. The advent of fringe benefits tax and the administrative burden this placed on employees caused employers to abolish these at the turn of the century and move to a cash-based remuneration package.
As a result, working people were left to their own devices in raising capital. Many lacked the financial life skills and confidence required and most worked for employers with little interest in the financial affairs of their employees.
This, Slot said, turned out to be a serious mistake, particularly after the ”discovery” of the payroll deduction as a form of security for loans raised with banks and microlenders.
While employers, including the government stood by passively, deductions from their employees’ salaries as well as stop and debit orders on their bank accounts steadily eroded their take-home pay.
At its nadir, some state employees even had to pay in on their salaries. The result was employees clocking up debts of R15-billion with microlenders, R10-billion with furniture retailers and R18-billion with their local municipalities.
Employers, including the state, blocked access to their payroll, again leaving employees high and dry because they no longer had the security of the payroll to offer in exchange for credit.
With massive debts but little disposable income and no way to pay their bills, some employees resorted to defrauding and stealing from their employers while others consented to, what Slot and Schussler call ”an economic death sentence”.
The death sentence being a court-sanctioned administration order, which was ironically administered by the very entity that had got most in trouble — the former
microlender-turned-administrator.
Slot said administration orders took otherwise economically active South Africans out of the economy for up to 30 years, a decade longer than it took to pay off an average home loan.
While no studies had been done locally, a United States study showed that while under administration, employees often lost their sense of dignity as they were stripped of the right to manage their own affairs or handle money and often began to underperform at work as well.
Up to 120 000 South Africans were placing themselves in this position every year, Slot warned.
The cost of this in the US was estimated at $150-billion (R1194 -billion) a year in lost productivity.
Slot, previously a banker, said a number of employers had of late shown renewed interest in the financial affairs of their employees. – Sapa