9 ways to get your employees out of debt

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

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

It’s your responsibility

It’s therefore important that employers understand and respond to the financial problems facing their workers. Doing so enhances your corporate citizenship and promotes loyalty, productivity, and cooperation among staff. I’m not suggesting that you should pay off employee debt. Rather, 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 that you can only help them to understand with their permission.

3. Discourage the use of “mashonisas”
   

   Mashonisas, or loan sharks, provide small, unsecured micro-loans of up to R8,000. Borrowers usually have to pay back these loans over six months, at around 5% interest per month. This 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. 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. These types of loan are best avoided.

4. Ban the word “debt consolidation”

   Be 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 debt 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

   Try 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’s a great idea to have a debt counsellor 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 counsellor can keep an eye on each employee’s debt and look out for reckless credit – which means credit given to an individual who cannot 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 programme

   Make it a policy that every new staff member must, as part of the induction programme, 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. 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.