Most South Africans out of money before payday - study

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Picture: iStock
Picture: iStock
  • A study found that as much as 76% of South Africans ran out of money before month-end while 57% of South Africans ran out of money halfway through the month.
  • The Covid-19 pandemic has introduced income earners to a whole new world of financial uncertainty and unexpected strain.
  • Proof of Impact chief impact officer Evan Vahouny said while early payment solutions existed in the US, a strong needed for such solutions was in SA.

A study commissioned by South African early-wage payment solutions provider Floatpays found that as much as 76% of South Africans regularly ran out of money before the end of the month, and that 57% of South Africans ran out of money as soon as halfway through the month.

The study was done by US data intelligence platform Proof of Impact for Floatpays, as it continues to extend its offering of early payment solutions to employers which allow employees to withdraw limited potions of their salary ahead of the monthly salary date.

The ongoing Covid-19 pandemic of 2020 has introduced income earners to a whole new world of financial uncertainty and unexpected strain, with unemployment surging, businesses closing and others unable to pay full salaries to employees.

Along with this, more young employees globally are showing a preference for immediate access to portions of the money they have already earned than over a single monthly payment.

As the response to the Covid-19 pandemic shifts into what is expected to be the largest vaccination programme in the country's history, people of all economic ideologies and political persuasions have called for state interventions to soften the economic blow.

These mechanisms include the SA Social Security Agency's emergency grant and the Unemployment Insurance Fund's Temporary Employer-Employee Relief Scheme.

Proof of Impact chief impact officer Evan Vahouny said the company compiled the study with few hundred Floatpays customers that gave data, did surveys and conducted interviews. He said while early payment solutions are not new in the US, a strong needed existed for such solutions in SA.

"Early wage access products have existed in the US since 2010 and is a mature sector servicing more than 10 million customers. One study found 76% of South Africans ran out of money before the end of the month and over 50% run out of money halfway through the month," said Vahouny.

Fewer payday loans

Vahouny said that more than 20% of Floatpays customers say they are no longer using payday loans and that Floatpays' cost was as little as two-thirds the cost of a credit card loan and half that of a payday loan.

"Most of the customers are using their withdrawals for food, transport, healthcare needs and utilities. There are social benefits that go beyond financial wellness. Allowing people to have access to those services when they need them save money and time and future financial distress," Vahouny said.

Floatpays CEO Simon Ward said the company offers its service to businesses for free, while it makes its revenue from a small average transaction fee of R22, while improving the financial fitness and literacy of employees.

"The case around this is if someone has worked ten to 15 days in the month and something unexpected happens, they are able to address the challenge by making use of their salary without sticking to a pay cycle.

"A significant portion of employees have to resort to families and friends, their employers and the informal credit sector. That is where they are vulnerable to amashonisa (loan sharks). We built a product that works with the payroll solution that allows people to take a portion of their salary when  they need it," said Ward.

Cosatu' parliamentary liaison officer Matthew Parks said while he saw the logic in the financial benefits that came with broadening and formalising this in more industries, the federation believed it was best to allow workers and employers to negotiate this one a case-by-case basis.

"I can see the logic in allowing employees to get portions and some employers allow for an advance, but it is mostly an exception and not the rule. We believe that should be established between an employer and employee depending on the unique circumstances, as legislation does speak directly to it," Parks said.

Parks said it was also critical to remember that many employees have acclimatised their financial lives and their needs to the status quo and that different income earners have different needs.

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