9 Ways to get your employees out of debt

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9 Ways to get your employees out of debt

BY WINNIE KUNENE

If you care about your employees’ wellness, you should also care about their financial wellbeing. Debt and financial problems can affect productivity, so it also makes business sense to take these matters seriously.

South Africans rely strongly on credit for daily living. R750 out of every R1 000 is used to service debt in South African households, according to the South African Reserve Bank. And the Global Findex report from the World Bank shows that in 2015, 86% of South Africans took out a loan, mostly to cover day-to-day costs. This means there is a big chance that many of your employees are over-indebted, and the stress and worry they experience will likely impact their productivity.  

PricewaterhouseCoopers conducted a survey that showed one in five employees said that their personal finances were a distraction at work and that they spent up to three working hours a week dealing with their personal financial issues.  Essentially, if you ahave a workforce of 20 employees, 24 hours a week are wasted on worrying about debt!

Understand your employees debt, review these statistics.

It’s your responsibility
For all these reasons, it is important for employers to understand and respond to the financial problems facing their workers. Doing so enhances your corporate citizenship and promotes loyalty, productivity and cooperation among your staff. I am not suggesting that you should pay off employee debt, but that you should provide as much support as possible to ease your workers’ financial pressures. Here are a few ways that you can go about this:

  1. Include financial security in your employee wellness programme.
    Make it a focus area so that you open up conversations about this important aspect of your employees’ lives. Look for ways to communicate with and educate them about finances.
  2. Help your employees to check their credit reports.
    In terms of the National Credit Act (NCA), every consumer is entitled to a free credit report every year from each of the four major credit bureaus (Compuscan, Experian, TransUnion and Credit 4 Life XDS). This can be done on the internet. You can help your employee to follow instructions on each credit bureau’s website. The report will clearly indicate the person’s exposure to credit and show how well or badly they are managing debt. Remember, however, that while you should help your employees to access their reports, these reports contain private information and you can only offer to help them understand them with their permission.
  3. Discourage the use of “mashonisas”. 
    Mashonisas or loan sharks provide small unsecured microloans of up to R8 000 which borrowers usually have to pay back over six months.  The borrower usually has to pay the loan back at around 5% per month, which can amount to 60% per year, although sometimes further loans come at a lower interest rate. These mashonisas prey on the desperate – offering loans when no financial institution would do so, and their exorbitant interest rates mean that your employee will have even less money to live on in the next month. Soon, they will be trapped in a vicious cycle of debt and repayment, so these types of loan are best avoided.
  4. Ban the word “debt consolidation”.
    Be very wary of encouraging an employee with multiple debts to go the way of debt consolidation – even if this seems like a good idea for getting debts under control. It may seem sensible initially – taking one loan, having one service fee and getting a good interest rate – but people who are already in the debt cycle might then find that it’s easy to take out another loan and end up right back where they started. Instead, get them to focus on paying back debts, aiming to pay back those that charge the highest interest rates first, to free themselves from debt entirely.
  5. Don’t provide handouts. Empower.
    You need to avoid the paternalistic response to the over indebtedness problem – which is to take over the debt. Offering an employee the option to take a course in financial literacy is more helpful. See the bottom of this article for more information in this area.
  6. Have a Debt911 desk in your HR office
    It is a great idea to have debt counselor on call. This is someone who comes into your office once a month to answer your employees’ questions about debt and to provide help where necessary. The counselor can keep an eye on each employee’s debt and look out for reckless credit – which means credit given to an individual who could not possibly afford to pay it back. If this has been the case, they can help to lodge a complaint with the National Credit Regulator (NCR).
  7. Fine-tune your induction program
    Make it a policy that every new staff member must, as part of the induction program, attend a budgeting class.  The policy should also indicate that the company takes the debt issue seriously, and will support the employee in dealing with their debt problems.
  8. Help workers find a low-cost bank account
    The major South African banks all have low-fee accounts. Capitec currently seems to offer clients the lowest fees. Having a bank account will help your employee to manage their income and expenses, and provide them with the security of banking with a formal institution.

    With strategies like these in place, employees will be better equipped to manage their finances and therefore focus on their work and increase their productivity.  They will certainly feel that their employer cares about them and as a result, will be loyal and hard workers.

    Implement workplace financial support for your workforce.

  9. Finding a financial literacy course for your employees
    There are many institutions that provide financial literacy courses.  1Life has a financial literacy initiative called www.truthaboutmoney.co.za, which prospective candidates must apply and motivate for – and is then free of charge. The course is carried out at Boston City Campus & Business Colleges, and is run by The Money School. It offers an easy-to-understand approach to help attendees get out of debt, build wealth and change their financial futures, giving them lifelong access to online financial tools, information and support after they complete the course.

Smart employers rely on Sage accounting solutions to take care of their accounting needs so that they can take care of their employees. Find out more about how our accounting software can help your business, today.