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Siya is a 28-year-old man working in Gauteng and earning a typical salary in his current employment as a call centre agent. Like many other working South Africans, he gets paid at the end of each month.

During the month, Siya was confronted by a few unplanned expenses. His car broke down, and he had to visit the doctor after falling ill. Something similar happened a few months ago. Now, with his budget shredded and his finances under significant pressure, Siya is in a tight spot. He finds himself seeking a short-term solution to bridge the gap before payday rolls around again. This is a tale as old as time and one that numerous South Africans face: the Payday Poverty Cycle.

According to a recent study, almost 80% of working South Africans seek short-term unsecured loans to help them meet their monthly financial obligations.

We South Africans are great at many things, but, sound personal finance decision making is not one of those things. We are not great savers or investors and we often purchase impulsively or live beyond our means, consistently spending more than we earn.

A large part of the reason for this problem is that we are not taught the importance of financial literacy, how to make smarter decisions with our hard-earned money, or how to make use of the tools and services available to us, especially during a crisis like the Covid-19 pandemic.

Situational influences by definition are temporary conditions that affect how consumers behave and whether they purchase a product, purchase additional products, or buy nothing at all. These influences could be physical, social, or even time factors.

What does this mean? Siya goes grocery shopping and while standing in line, ready to pay for his essential goods, he finds himself in “temptation alley” and decides to pick up a gadget he doesn’t need, snagged by alluring marketing tactics! Many of us can identify with this scenario.

This event does not occur in isolation. The people we’re surrounded with or the environment we’re in can have an impact on us and promote sub-optimal financial decisions. Consumers are often blissfully unaware when their surroundings direct them into buying things they don’t need.

Research has found that the situational influence commonly known as the Payday Millionaire Effect is a crucial contributor to individuals overspending during the month and perpetuating the payday poverty cycle. 

There is hope, however. These unnecessary expenditures can be prevented by becoming aware of unconscious spending and avoiding making decisions based on the lump sum that appears in your account at the beginning of the month.

Financial literacy, and its implications, are not concepts that many of us fully understand. Essentially, financial literacy is the ability to understand and effectively apply various financial skills in our everyday lives, including personal financial management, planning, budgeting and investing.

Why is financial literacy critical? It may seem obvious but extends beyond the simple, effective allocation of your earnings to meet short-term debt and long-term savings and investment goals. 

With an estimated population of 59 million people according to the UN, only around 4% of South Africans have savings. In many cases, this is a direct result of inadequate financial literacy.

The payday poverty cycle can be overcome for Siya and all of us, but it requires some changes in the way we are taught to handle our finances, and in the tools, we have available to do so. One powerful way to achieve this is through the distribution and use of budgeting and financial management tools. Another powerful way, which employers can safely and easily provide for their employees, is through instant access to earned but unpaid salaries and wages, as a way to soften the effects of the Payday Millionaire Effect.

Financial wellness is no longer a luxury for the select few but an imperative state of being, whereby you have control over your daily and monthly finances, you can absorb financial shocks and you remain on track to meet your financial goals. To have financial freedom is possible for all South Africans.

Although the problems faced by many South Africans seeking unsecured, expensive and high-risk debt are vast and complex, there are solutions available. It comes down to our ability and willingness to implement these necessary changes and use the tools that are readily available to us.

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