Wed, 19 Jun 2019

Just the notion of sound financial decision-making is enough to make millions of people whimper in fear, as quite frankly, most of us have accepted the narrative that making the right choices when it comes to our finances is beyond our capacity and reach.

We happen to live in one of the most unequal economies in the world. Last year I read the World Bank report which emphasized what many South Africans experience on a day-to-day basis - more than 75% of South Africans slipped into poverty at least once between 2008 and 2015 and that currently above 40% of South Africans lived below the lower bound poverty line.

What is most alarming for me is the fact that this situation stems from our fear of making the difficult decisions needed when it comes to our money. Drawing from my experiences as a Financial Director, I've observed the disturbing trend currently dominant: most South Africans would happily get themselves into debt knowingly, rather than pursuing alternative measures which may initially be more arduous in the beginning, but prove to be more financially prudent in the long run.

The marshmallow test

This is best exemplified in the marshmallow test conducted by researchers and psychologists in 1960 at Stanford University. Children were placed in a room and were given the option of either eating one marshmallow immediately or waiting for 15 minutes to be given another marshmallow thus having two.

The unanimous outcome of that experiment ended with a bulk of the children failing to hold out for the 15 minutes and eating their marshmallows in the first three minutes of the test. I'm of the opinion that most of us share the same instincts as the children who ate their marshmallows in the first three minutes and why we perpetually keep tripping on the stones of financial woes.

Numerous economic reports and tests have determined that poor people are more inclined to make bad financial decisions. Now when you couple this trend with the fact that 47% of our economy is made up of black South Africans classified in the lower income spectrum - we should be shocked into action to ensure that the 40% mark of South Africans living below the poverty line does not increase.

READ: Household debt and consumption moderately higher in 4th quarter of 2018

Short-term fixes

I believe it's a mentality thing. South Africans must completely eradicate the mentality that has seen us running to acquire loans as a short-term fix without taking into consideration the repercussions. Immediate gratification, and again I refer to the marshmallow test, is principle that will only serve to dig us into deeper financials holes.

People need to embrace the fact that recovering from bad financial situations will need both discipline and sacrifice - in essence making the difficult choice rather than the easier one. Everyday we are faced with financial decisions; getting unnecessary take outs or cooking in, going out or staying at home and watching a movie. These are the just some examples of financial decisions that have a significant bearing on our financial standing.

Of course in life nothing is ever that black and white and there are other socio-economic variables that bear their impact in this financial equation. Furthermore, legacy issues come into play in this space. If everyone else is getting credit (that they cannot afford), then why shouldn't I be doing the same?

Beware the festive season

We often take for the granted the power of influence and our impotence to resist the status-quo. Think about how you have fallen for the same trap every year when it comes to excessive expenditure during the festive season. You spend the first quarter of the year recovering from the short-term debt you accumulated during December and in the following year, you are right back at square one.

To be truly free of financial woes does not lie in the size of your bank account, but in the ability to apply reason in a sea of financial complexities. Be equipped to make the most informed sensible decision regarding your finances even though you are faced with overwhelming options that contradict the most practical solution.

Understand that there will be more information available on how you can acquire something you cannot afford (through credit and financing of course), than information informing you on how NOT to purchase something you cannot afford.

READ: Disposable income of SA consumers under considerable pressure - Sun International CEO

The accountability to make the right decision does not lie with the bank or seller, it lies with you. But even if you have not learnt anything from this article at least consider these tips below. They may put you in good stead in the long run.

* Investing in property - if you are a savvy property buyer and you adhere to the golden rules of property investments, you can enjoy remarkable returns on your investments and see the benefits that property investment can provide. Even with the recession having its effect on the market, those who bought property and at the right time, will still have seen great growth on their investment

* Have an investment account: One of the greatest aspects of long-term investing is that it can be done by anyone. When it comes to investment, you could take two routes: the long-term or the short term. There are various areas that you could invest on a long-term basis. One of the most rewarding ventures that you can adopt is long-term investments. The rewards of long-term investments are far more significant than the short-term investments.

* Become a small business entrepreneur: Many South Africans believe that rapid business growth is an indicator of business success. However, it has been found that small businesses chase new business at a higher rate than big businesses and they hire more staff and expand their premises more regularly than bigger businesses. As the saying goes, what glitters is not always gold and bigger is not always better. Instead staying small and nimble can be just as, if not more, rewarding.

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