How to help employees with debt

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Big companies have played a significant role in reducing the indebtedness of their employees and, by doing so, have improved the quality of life of the country’s citizens, writes Frank Magwegwe 

The quality of a nation’s citizens – corporate and individual – determines that country’s future.

South Africa’s National Development Plan (NDP) has active citizenry as one of its six pillars. The NDP highlights the importance of active citizenry when it says: “An active citizenry and effective government can help drive development in a socially cohesive environment. Promoting active citizenry leads to a strengthening of development, democracy and accountability.”

An often neglected area that South African corporates can use to demonstrate active corporate citizenry is employee debt. National Credit Regulator reports record that 10.7 million (45%) of South Africa’s credit-active consumers have “impaired records”.

Furthermore, SA Reserve Bank reports suggest that about R750 out R1 000 is used to service debt by South African households. As it stands, South African consumers rely strongly on credit for daily living. This is also borne out by the recent Global Findex report from the World Bank that indicated that, last year, 86% of South Africans took out a loan, mostly to cover day-to-day costs. According to the report, only 9.2% of these borrowers bought houses with the money, while 7.5% borrowed for a farm or business, 18% for school fees or education, and 18% to pay for healthcare costs.

Employees drowning in debt have low employee-engagement scores and, frankly, can’t be active citizens contributing to tackling challenges in their communities.

Therefore, highly indebted employees are not good for both corporate South Africa and South Africa as a whole. As active corporate citizens, companies can do a few things about employee debt:

. Offer a debt audit among employees;

. Secure advice of managing debt wisely for their employees;

. Refer employees with impaired records for debt counselling;

. Offer employees basic money-management training, including budgeting and savvy shopping; and

. Check that any emolument attachment orders (commonly known as garnishee orders) its payroll department are effecting are lawful.

Many companies offer employee wellness programmes. To be active corporate citizens tackling employee debt, companies may want to incorporate financial wellness into their broad wellness programmes.

Not only will this tackle employee debt, but will also proactively address how employees manage their finances across a range of factors such as day-to-day costs, unexpected costs and saving for retirement.

Since saving is simply deferred consumption, it is a surprise that South Africa has a low savings rate. By introducing financial wellness programmes that tackle employee debt, corporates will indirectly contribute to building a savings culture in South Africa – an important contributor to economic growth.

As Bobby Godsell, the chair of Business Leadership SA, puts it: “Being involved in how broader society progresses, taking on things we can manage and do well and looking beyond simply a company’s immediate business activity is the stuff of good [corporate] citizenship.”

Regarding employee debt, South African corporates have an opportunity to do exactly this and make a huge impact on employees’ everyday lives and their active citizenry.

* Magwegwe is a segment chief executive of Momentum Retail

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