Financial pressures during the annual festive period can make for a holiday season full of worry and anxiety. It is also a time of reflection, which could exacerbate health stress given the past two Covid years. Reflection can, however, be used to effectively prepare for the future and discover the benefits of a well-managed budget.
Here is some advice on avoiding getting into unnecessary debt from Omar Baig, Head of Transactional Banking, Absa Retail and Business Bank, and Moremi Mabe, Head of Pre-Legal Collections, Absa Home Loans.
While a proper financial plan is essential throughout the year, the two agree that having a budget is critical during the festive season, more so because consumers are on vacation or are spending time with loved ones and thus may be spending more. Ultimately, consumers need to ensure they have sufficient funds to last them at least until their salaries are paid in January.
Bonus and budget
While South African consumers are mindful of their financial well-being, there have been many pressure points over the past two years, especially with the recent increases in financial rates, which impacted the entire retail value chain. If the profound health and financial consequences of the pandemic have taught us anything, it's that insulating oneself financially is vital. For many, the loss of jobs and reduction in salaries and income has placed significant strain on their finances and disposable income.
Two factors specifically have been instrumental in the need to readjust a budget or create one: the recent increase in the prime lending rate and increases in the fuel price. Regardless, says Baig, there are market indications of growth in spending, and with end-of-year bonuses, the temptation is there to increase household spending.
"We have seen many consumers use their bonuses very positively, however. They pay off outstanding balances on credit products or a bit more into their home loan accounts, reducing the balance and interest paid over time. While it is always tempting to use bonuses on impulse purchases, consumers should be demonstrating a higher level of financial prudency when managing the potentially large sums that come from receiving a bonus."
Mabe concurs: "This means having a budget is critical, but one has to be realistic, open and honest when conceiving it. It allows you to have an overall picture of affordability, and that starts with buying within your means. A detailed budget, a review of bank statements, and expenses, whether this is onerous or working with a big or small budget, can be self-empowering.
“There are a plethora of self-empowering initiatives where you can seek advice and learning resources with the aim to become financially educated around savings and personal financial management, many of which are free,” says Mabe. "Absa also has many, and we urge consumers to research and learn as much as they can, particularly those that relate to the financial concepts of budgeting; savings vs investments; compound interest; collective investment schemes (CIS); asset allocation; and how to find a financial adviser who can help with setting up a savings or investment plan."
“Absa strongly encourages its customers to budget and spend wisely during the festive period. For example, maintaining sufficient balance in your account to honour your financial commitments such as debit orders," says Baig. “We also have informative financial educational material on our website that customers can familiarise themselves with. Absa customers who wish to discuss their financial matters in person can visit one of our branches or dial our call centre to speak with one of our bankers.”
Recipe for control
Beyond this, Baig and Mabe have put together a simple formula to ensure that consideration is given, during this season, to some of the most valuable financial advice. Their basic recipe for success is:
- Plan to save or invest a dedicated amount monthly within your existing budget.
- Set up a monthly debit order or stop order to run from your current or transactional account into a chosen savings or investment plan.
- Plan for long-term needs, such as retirement.
- If there are the means, increase the savings amount at least with annual inflation.
- Do not cash out long-term investments to fund short-term needs.
- Live within your means so that you can afford to save for the future or a rainy day.
Don’t skip your home loan or insurance payments.
Some may feel tempted to skip their home loan or insurance instalments when the festive season places an undue burden on a budget. However, doing so will increase financial pressure on the January budget. It may also impact an individual's credit profile, which will make it difficult to access credit in the future.
"Should a customer have a homeowner's comprehensive insurance paid directly via a monthly debit order and miss their December premium, there is a risk that their property will not be covered should an unfortunate event occur."
Access credit that you can afford
Baig also warns about borrowing or accessing additional credit at this time: “Do so only if you can afford the instalments that will follow”. It is crucial to differentiate between good and bad credit. Accessing your home loan for further credit is good if it is for renovations and improvements to the property that will contribute to its value.
Fraud and threats
This December, says Mabe, fraudsters (as they do every holiday season) go into overdrive, so consumers must be vigilant. "Over the past 18 months, the industry has noted an increase in social engineering, where fraudsters or syndicates trick customers into disclosing their personal and confidential information.
“With social engineering, whether it’s in the form of a voice call or vishing, syndicates typically pretend to be from a bank and share personal information, which often results in customers “letting their guard down” and disclosing confidential information. Absa is continuously educating our customers about the latest fraud threats to the extent that even our OTP messages contain a warning: ‘if asked to share the OTP, consider it fraud’. Unfortunately, not everyone reads the complete message, which often proves decisive in preventing fraud incidents.
“For clarity, Absa will never ask customers to share their ‘keys to the safe’ including the online banking PIN, password, card CVV, PIN or one-time password, with Absa or to approve activities to prevent fraud,” says Mabe. “We advise customers not to disclose these to anybody, even if a bank representative seemingly makes the request.”
If unsure, terminate the call or activity and call Absa’s Fraud Hotline on 0860 557 557. In addition, one should never approve a Mobile Banking application request or any other transaction request if you’re not the one who is carrying out the transactions in question. Customers are urged to always remain vigilant by thoroughly reading Notify Me (SMS) notifications and verification messages before responding to them.
“Absa’s systems are world-class, and we encourage customers to adopt the Absa Mobile Banking Application (Mobile App). To this end, Absa launched a market-first digital fraud warranty for customers who bank using our banking app, signalling our confidence in the security of our app as the safest way to bank," says Baig.