~ You should start now~

In the 1960’s, Stanford University conducted a social experiment on 4-year-old children called the Stanford Marshmallow Study.Each child was offered a marshmallow but was given the choice that if they could wait for the tester to return from an errand 20 minutes later, they would get two marshmallows. Those that could wait the 20 minutes demonstrated the ability to delay gratification and control impulse. Years later the scientist, Michael Mischel, tracked the children down when they graduated from high school and the difference between the two groups was dramatic: the group that had managed to delay gratification had lead a successful school career, while the other group who gave in and ate the marshmallow were struggling with life. Among the findings was a marked difference in financial habits.*

So how do you make sure you set your children up with the right tools in life? Hein du Plessis, MD of DebtSafe, says you should start now by teaching your children about money, how to delay gratification and how to set and achieve financial goals. Hein’s approach covers all stages of childhood from 3 years upwards, but first he encourages a few guiding principles;

1. Educate yourself – So that you know first-hand about saving, budgeting & consumerism.
2. Practice what you preach – Children learn more by you setting a good example for them to follow.
3. Take it slowly – You have a lot of time, so set up lessons early on and reaffirm them throughout their lives.
4. Give them the reins – They will integrate what they learn more by having a hands-on experience.
5. Keep it fun – Relax and show your children that they can be confident with money without fear.**

Pre-School

• Give them a set amount of pocket money with which they can buy treats. They will be able to learn some basic principles of budgeting.
• Counsel them with each purchase, that if they get this now, they won’t be able to get that toy they planned on buying. This will also create good references for when they learn about consumerism and how to delay gratification.
• Teach them to save, by making a piggy bank/ money box where they can put money away for that toy/ bike they have their eye on.

Primary School

Keep going with the above points and add in these additional guidelines;

• Introduce more items they need to budget for to teach them to think forward into the month of what expenses they will need to purchase like birthday presents for friends, toys or outings like visits to the zoo.
• Show them that they can make more money to help save for their dream bike. Help them set up a neighbourhood car wash, or a nail bar and paint all the mom’s nails in the street.
• Introduce the concept of investment. Let them take some of their saved money to buy the products for their car wash and nail bar. Explain that they need to buy the products within a reasonable budget and then count how much they made and what their profit was. Put it back into their savings box.
• Up the saving goals – Help them set a bigger goal, such as spending money for the December holiday, a shopping trip or that awesome Acer Iconia tablet they have their heart set on.
• Teach them to plan forward and dream big, as they will be able to get there if they create a plan and stick to it.
• Subtly reinforce these principles with every purchase they make, and don’t get angry or give up on them if they make a bad decision. These are the decisions that they will learn from.
• This is also a good time to start educating them about advertising. Ask them if it’s a want or a need? Explain to them what impulse buying is. Ask them ifthey can wait 30 days and then make up their mind if they still want it.

High School

Add these lessons;

• As they enter high school, take them off to the bank and start an investment for them. Let them invest some of their savings which they can add to monthly over their high school career. They can use this to put a down payment on a car when they turn 18 or go on a Contiki Tour in Europe.
• Add in more items that they will need to budget for such as cell phone and data bundle costs.
• Help them to think of clever ways to make more money such as blogging about their interests/ experiences.
• When they are half way through their high school career, introduce a small credit card with a low limit. Educate them on compounding interest and see how they manage it. Sit down every month with them and go through the statement. They will learn first-hand the effect of compounding interest and the effect it has on their hard saved cash.

University

With one foot out of the nest, help them fly by doing the following;

• Hand over the responsibility of budgeting and paying their way. You’ve done a good job of setting your young adult up with financial wisdom. Sit them down and help them formulate a budget for University fees, books, library card – printing & copying, rent, medical aid, petrol, car insurance, food, clothing, savings, cell phone, data bundles and anything else they need to pay for. Give them the budgeted amount and check in with them on how they are finding the challenge. Give yourself access to all the account statements so that you can counsel them with their spending. They will trip up but you’ll be there to help them formulate plans to correct their situation, without bailing them out.
• They can also think of more ways to earn cash like waitering, doing promotional work, selling their study notes, tutoring other students and developing their blog.
• Take their credit card away so that they learn to live without credit.
• Keep growing the saving and investment goals.

For more information visit DebtSafe at: www.debtsafe.co.za.

-ENDS-

* sourced: http://www.sybervision.com/Discipline/marshmallow.htm

**sourced: http://zenhabits.net/10-lessons-to-teach-your-kids-about-money/

Once consumers have overspent and cannot afford to pay back the monies, ugly little ‘additional costs’ begin creeping their way into an already unhealthy negative number, such as interest, fees and charges. What the ‘In Duplum rule’ does is protects consumers and essentially caps the interest figure once it reaches the same amount as the actual money that is owed.

DebtSafe MD, Hein du Plessis, explains how this works. “If, for instance, you have purchased something for R5000 on credit and, for whatever reason, you miss payments which in turn pushes up the interest owing, once that interest figure reaches R5000, the ‘In Duplum rule’ comes into effect. You will then only need to pay back the original loan amount plus the capped interest (in this example R5000) relative charges or fees.

Although the rule is available to all consumers in default (non-payment) of a credit agreement – as in, haven’t paid the amount they legally said they would – those consumers not under the debt review process run the risk that the credit provider either enforces the agreement or places the consumer on terms to cure the default (non-payment) and as such, loses the benefit of the rule to avoid enforcement by the creditor itself.

Du Plessis advices: “Credit agreements will mostly contain a clause in which the full outstanding amount becomes due and payable immediately in the event of non-payment. Once a re-arrangement order that is obtained through a debt review court order has been arranged, the non-payment will continue to exist, but the credit provider cannot enforce the agreement as long as payments are made in terms of the debt review court order.”

A great mechanism

The ‘In Duplum rule’ is a great mechanism to limit repayments (depending on the type of debt, the interest rate and the balance outstanding of course) on very expensive short term loans with high interest rates such as personal loans, credit cards etc. This would also benefit the homeowner in that, depending on the circumstances, a consumer could potentially be out of debt three to four years earlier than initially planned.

The common law ‘In Duplum rule’ has been part of our law for over 100 years and the National Credit Act introduced the statutory ‘In Duplum rule’ in 2007. The former deals only with interest and provides that outstanding interest can never be more than the original capital amount. Costs levies and fees are charged in addition to the interest and are not capped. Once a payment is made having the effect that the interest is reduced below the original capital amount, interest commences to run again until the maximum is reached. In contradiction, the statutory ‘In Duplum rule’ provides for the outstanding balance on date of default and not the original capital sum as benchmark, sets the requirement of default throughout, and includes not only interest, but also levies, costs, fees and charges. The last aspect is that in terms of the statutory rule, as long as the default exists, interest does not commence to run again nor can further charges be added once the maximum is reached.

Especially over the holiday season, be wise about what you are spending and try to avoid this years’ festive season hangover. For more advice, go to www.debtsafe.co.za/avoid-the-spending-hangover-this-festive-season/.

For those whose finances are spiraling out of control, here’s a legal option that could help ease the strain.

Like Demi Moore, David Duchovny and the two good looking teenagers the cast in the movie The Joneses, we’ve all been faced with a feeling of “I wish I could have/afford/use/drive/live what so-and-so is/does”.

The reality is, however, many people make these financial decisions and end up putting themselves in a situation that causes way more stress than is necessary – especially when they face repaying limitless amounts of admin fees and interest on top of the loaned amount. But there are laws in place to protect the consumers from having to keep repaying these amounts. Enter the “In Duplum rule”.

What the “In Duplum rule” does is protects consumers and essentially caps the interest figure once it reaches the same amount as the actual money that is owed.

Say, for instance, you have purchased that XXXXX for R5,000.00 on credit, and for whatever curve ball life has thrown at you, you miss payments which in turn pushes the interest owing through the roof. Once that interest figure reaches R5,000.00, the “In Duplum rule” comes into effect. You will then only need to pay back the original loan amount plus the capped interest (in this hypothetical example, R5,000), relative charges or fees.

The rule is available to all consumers in default of a credit agreement. So if you haven’t paid the amount you legally said you would, you run the risk that the credit provider either enforces the agreement or places you on terms to cure the default.

“Credit agreements will mostly contain a clause in which the full outstanding amount becomes due and payable immediately in the event of non-payment,” says Du Plessis. “Once a re-arrangement order that is obtained through a debt review court order has been arranged, the non-payment will continue to exist, but the credit provider cannot enforce the agreement as long as payments are made in terms of the debt review court order.”

The “In Duplum rule” is a great mechanism to limit repayments on very expensive short term loans with high interest rates such as personal loans, credit cards etc. This would also benefit the home owner in that, depending on the circumstances, a consumer could potentially be out of debt three to four years earlier than initially planned.

With the festive season comes ample excitement and celebrating. But it’s also a time when we get to spoil our loved ones with gifts – however, this doesn’t have to mean big spending. Why not improvise by getting creative and making your own gifts? Here are some ideas for creating your own special gifts, which are sure to be extra meaningful to those on the receiving end.
Cards

Make your own Christmas cards, especially if you have children. It’s a great way to spend time with them and get them to learn while being creative. Also, recycle old cards by cutting out the images on the card and using them as gift tags, or find festive images online and print these onto coloured paper.
Biscuits

Find your grandmother’s old gingerbread biscuit recipe and store them in a recycled glass container, like a jam jar wrapped in ribbon or colourful paper. These make for tasty gifts and a sweet treat for the table.
Scrapbook Collage

Create a special collage for a friend or parent by collecting photographs and mementos and using scrapbooking elements to create a memorable gift.
Craft Ideas

Learn to mosaic, pewter, decoupage, grow seedlings, do pottery or frame making – it’s easy and fun to make special gifts for friends and family that more often than not, they appreciate even more than something purchased from a store.

There are many more ways to come up with exciting gifts this holiday season. If you would like to share your own homemade pressie ideas you can post them on our Facebook page or tweet them to @houseleisureSA.
For more ideas on how to save money this festive season, visit debtsafe.co.za

Julius Malema recently marched to Pretoria demanding “economic freedom” in his lifetime. The economic chaos in Europe continues unabated and it seems we are not out of the recession yet. So I asked Hein du Plessis, Managing Director of DebtSafe for ten tips to financial freedom this year.

Here are the tips, and you don’t have to march to Pretoria for this kind of freedom.

1. Do not spend the rest of the year’s income now

Avoid taking on a new or additional credit card this year. Don’t be tempted by a convincing voice on the other end of the phone asking you to take another credit card with ‘so called’ benefits.

2. Treat each financial decision with the highest respect

Ensure that each financial decision you take this year is treated with the utmost respect and is well thought through. The way your finances are managed this year will determine your financial position next year.

3. Planning, planning, planning and planning

Financial freedom is achieved through planning. As tedious as this might sound, it will be worthwhile in the long run. Make a note of each and every expense during the month, including tips to the guard who watches your car, bank-charges, interest on your credit card, etc.

Add up all the costs at the end month-end and determine exactly how much money you have spent. This will help you to make informed decisions in future and draft a budget that can be applied throughout your lifestyle. Plug the holes through which your money is draining out.

4. Always know where you are financially

Keeping track of your financial portfolio during the month can be stressful, mainly because you have overspent or had to spend money on an item you did not budget for. Always stay abreast of every activity in your financial profile.

5. Take a 30 day breather before any major financial commitment – especially debt

If you feel that you are in need of a new car, radio or even a new set of kitchen utensils, take a ‘time-out’ to think about the ‘need vs want’. Do your homework, analyse the situation and then make an informed decision after a 30 day ‘breather’. Taking this time out will allow you to see the situation objectively and without any emotion. There should be no ‘urgency’ when deciding on these items, even if it is a limited offer.

6. Keep your money and loved ones separate.

Most people go through financial difficulty due to their financial involvement with friends and family; whether this is due to a mutual business enterprise or whether you are asked to lend money to a relative going through a difficult time. Try and analyse your situation first and foremost: how will you be affected when agreeing to the proposal? Decisions such as these are usually emotional and are not approached realistically and objectively. You can provide help in other ways too –inviting those in need for dinner once a week or offering a lift to the shopping mall for a grocery ‘run’. Always remember what you would feel like taking legal action against family and friends.

7. If it ain’t broke don’t fix it

If you feel completely in control of your finances and already have a set of do’s and don’ts when it comes to your spending habits and it works for you, don’t change anything. Focus on maintaining your current state of affairs. The opposite is also true: keep doing what you have always done and you will get what you have always got. If it doesn’t work, it is time for change.

8. Find another avenue rather than a financial reward

If you have met a specific goal in your professional or personal life, reward yourself with a special treat other than a new piece of clothing or a day at the spa that can amount to exuberant fees. Spend time with your spouse, your children or old friends. If the word ‘I deserve’ is the justification for buying something, you don’t really need it. Some of the worst decisions are made by using those two words. Remember that such a reward will not last and the novelty will wear off very quickly. Chances are that the instalments will outlast the novelty.

9. Be a conscious and cautious shopper.

When you are buying bread and milk on a daily basis, ask yourself whether it is cheaper to stop at the local garage or whether stopping at the Checkers or Pick ‘n Pay will save you more money in the long haul. Most of us opt for the most convenient option, rather than the cheaper one. Never shop during peak times or at the end of the month when most retail outlets try and lure consumers.

10. Save, save, save!

Start saving little bits at a time, even if it is less than 3% of your monthly salary, it is a good start and will encourage a healthy financial habit.

Stigma keeps over-indebted from asking for help to sort out their finances

There seems to be a stigma attached to applying for debt counselling, but taking the initiative to deal with one’s debt burden should be seen in a new perspective that engenders respect, rather than shame.

While many of us ride our luck and avoid scrutiny of our financial affairs out of fear, it is those who have applied for debt counselling who are now facing up to their budgeting problems and stand to learn the best money-handling habits.

Hein du Plessis, MD of DebtSafe, says statistics show that the debt problem is rising. But the debt counselling process has not had the impact it was supposed to have since it started four years ago. “While there are hundreds of thousands of South Africans defaulting on their debts each year and ending up with impaired credit records, the total number of applications for debt review sits at around 6000 a month. The process works, so the lack of its use is concerning,” says Du Plessis.

So why aren’t enough people signing up? Du Plessis says people usually try to borrow money to get out of debt – a decision that ends up making the situation worse. “Debt counselling is too often seen as a last resort, but it actually prevents the agony of blacklisting and legal action. It’s a proactive step that shows your creditors you’re taking responsibility for your debt. Because it relieves all the pressure, it should be the first step, not the last.”

Debt counselling leads to an average reduction of 54% in monthly debt repayments. But the process is viable only for those who are not beyond help. “Anyone considering applying for debt counselling must still have a viable income and be able to make a reasonable debt-restructuring offer to their creditors.”

The debt review process aims to find a settlement that suits both parties and a stabilised process of repayments. Du Plessis says improvements in the industry and reasonable offers to creditors have brought increased buy-in from jilted lenders. This trend would make legal action the less preferred route in future.

“It is the better option because it rehabilitates consumers and turns them into future borrowers. There was resistance to the high level of regulation, but the process provides a high level of visibility for creditors into what the person can afford.”

If your creditor opts for the legal route, it begins sooner than you might think. “Technically, legal action starts the moment your creditor sends out the first notice of default. Once they begin that process, they will be dictating the repayment terms, and they will nearly always be higher than what the debt-counselling process could achieve. So it’s important to apply for debt counselling before you default. Don’t wait until you are six months behind with your payments.”

What happens when you apply for debt counselling? “Counsellors help put a repayment plan and budget in place. The process also prevents you from applying for further credit. The repayment amount stays constant, so it gets easier every year to service those payments. Cascading payments also means once debts are paid off, the money gets spread to remaining obligations.”

In other words, the debt counsellor will structure the repayments to focus on getting rid of the debt with the highest interest rates first, such as credit-card debt. Once this debt is paid off, you keep paying the same amount towards your total debt each month, which enables you to pay more on existing debts. Eventually, you will be paying off the last debts faster than the repayment terms require, which works in your favour.

Be warned: while being signed up for debt counselling protects you from legal action, missing one month’s repayment will see the process terminated. Aside from the legal protection it offers, debt counselling also involves many mechanisms to reduce the costs of servicing your debts – such as interest, fees and charges. Extending repayment periods could open you up to ever-climbing interest and never-ending debt, but the in duplum rule built into the National Credit Act limits the interest you pay while under debt review.

“It caps the interest figure once it reaches the same amount as the outstanding debt balance at the point of default. Also, note that debt counsellors have the ability to negotiate interest rates with creditors, to a certain degree.”

Stick to cash – and stop borrowing

“When you borrow to pay debts, you know you have a problem,” says Hein du Plessis.

Here’s his advice for staying away from unmanageable debt.

“Be careful with credit – don’t assume your earnings and expenses will remain constant. Living costs are rising fast. My advice would be to limit debt to asset-based finance if you can, and even then you should stick to reasonable instalments. Cars are dangerous purchases – don’t finance a car for longer than 36 months. If you stick to this rule, you will see what is actually affordable for you. Cars lose value, so if you’re still paying off a vehicle 60 months after you’ve bought it, I would say that was a bad purchase decision. ‘Affordability’ is not what you can afford to pay in monthly instalments.”

He advises against taking on more credit if you’re struggling to meet your existing payments. “Stop borrowing. Stick to cash, because any loans or credit available without assets to back them will come at high interest rates. If you’re overexposed, act today. If you can’t pay basic expenses after servicing your debt, it’s already too much. If you can deal with creditors directly to renegotiate, do so. When you borrow now, you’re spending next year’s salary – you have to catch up at some stage. Lastly, and most importantly, never borrow against your retirement funding.”