South Africans are suffering from the effects of the highest unemployment rate since September 2003, i.e. 27.7%, which means a growth of 433 000 people joining the unemployment stats. The big concern is that 58% of that number are young people between the ages of 15 – 34. This increases the rate for youth unemployment to 34.2% in South Africa.

“This is a scary reality for our young people,” says the Credit Ombud, Mr. Nicky Lala Mohan, who is concerned about the growing numbers of youth unemployment. “My bigger concern is their view on debt and spending patterns which suggests that they are really not good at managing their credit,” he adds.

The youth of today are described as tech-savvy, interested in branded clothing, high-end gadgets such as cellphones, tablets/pads, fitness watches, HD television sets, music systems, etc. Add to the list expensive cars, apartments in upmarket areas, regular takeaways and the result is more and more credit being taken out to fund their lifestyles.

The Credit Ombud office conducted a survey on +- 250 young people between the ages of 18 and 30 years in Gauteng during the course of their youth workshops.   The results confirmed that there is a reason for great concern about young people being in debt.

The survey shows that most of them have debt and have opened accounts from as young as 18 years of age. Those surveyed indicated that the kinds of accounts they have were mainly clothing accounts, personal loans and credit cards.

Students can open a student cheque account and even get their first credit card by using their student cards and proof of registration, along with other documents as required by legislation. The credit cards are generally issued based on proof of income, which comes in the form of regular allowance deposits into their bank accounts.

“We want to look good and have money,” one student said in response to the question: ‘what do you use credit for.’

Some of the other responses given when asked what they use credit for are:

• “I wanted clothing for special events and did not have the money to buy them”
• “To study”
• “I wanted a credit card and a cellphone”
• “I was unemployed so I needed some money”
• “Family emergency and I had no funds for it”
• “Because I was unemployed so I needed the money”
• “Loan and credit card to build home in EC”

Something else that has come out as priority for them is data and entertainment where they spend an average of between R500 and R2000 per month.

When asked what Credit Bureaus do, most responded that “they blacklist” –  and when asked whether they are blacklisted* the answers were; ‘I don’t know’ and ‘maybe.’

“These young people’s responses should raise alarm bells –  which is why during the month of June the office the Credit Ombud has embarked on facilitating numerous workshops tailored just for young people which we are rolling out to the different provinces in South Africa”, advised Lala Mohan.

“It is depressing to find that students are being negatively listed (blacklisted) before they even start working”, he continues.

Being negatively listed (blacklisted) means you will struggle to get finance/credit in the future. Many consumers find themselves declined credit for important things like cars, houses, etc due to their irresponsible spending in their youth. In fact, the biggest danger of irresponsible spending and credit behavior is when your chances of securing employment are affected – something many young people are sadly unaware of. “Prospective employers may check credit profiles as part of their recruitment process, only if the position requires honesty when dealing with cash and finances, and young, newly qualified professionals may lose out on positions because they acquired a bad credit record as students because of mismanaging their accounts,” cautions Lala Mohan.

As we celebrate Youth Day on 16 June, the Credit Ombud gives the following tips for the youth of South Africa:

• Always take out credit for the right reasons – to build your credit record and only if you can afford the repayments.
• Avoid taking out credit to sustain day to day expenses.
• Distinguish between your wants and your needs.
• Understand how credit bureaux and credit reports work and check your credit report regularly.
• Do not ignore debt collectors’ calls and letters.
• If you have a student loan, commence repayments once you employed and where possible, pay more than the minimum.
• Always remember that how you conduct your credit accounts now could affect your whole future.

* Blacklisting is a misleading term.  Credit grantors also share positive information about their customers and ALL the information is stored on the credit bureau. This is important as it facilitates access to credit. There is no “blacklist” as such, but a person’s credit report may contain negative or adverse information.

Consumers can contact the office of the Credit Ombud for FREE assistance if they experience any issues relating to credit agreements with non-bank credit providers such as the clothing and furniture retailers as well as micro-lenders, fraudulent listings, emolument attachment orders (“garnishee orders”) or general complaints about their credit bureaux listings.

The office can be contacted on 0861 66 28 37; on the website www.creditombud.org.za; email us at ombud@creditombud.org.za or send a sms to 44786 and we will call you.

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If you would like more information about this topic, please contact Salem Dyafta , Public Relations Manager at 0792243802 or email at sdyafta@creditombud.org.za.