JOHANNESBURG - As South Africa marks Youth Month, financial experts are encouraging young people not only to focus on saving money, but also to look into building a healthy credit history.
This comes as National Debt Counsellors Director, René Moonsamy, has noted how young people often try to avoid credit altogether, a move that could potentially put them at a disadvantage later in life.
This is, of course, when they have to make big financial decisions like buying a car, a home or even furthering their education.
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“Money's still a taboo topic, and most people aren't willing to be vocal about the money mistakes they've made and how they've learnt the hard way. We've all maxed out our credit at some point in our lives before we learned on our own. It is important to teach our young people how to use credit to the best of their advantage,” she explains.
Moonsamy emphasises the need for one to understand how credit records work, how banks assess risks and why having a credit history matters.
“If they want big finances in the future, like bonds and vehicles, it's important that they have a credit record to show that they are financially active and that they are able to manage finances and repayments on their own."
“At the same time, they have a proven track record that they are creditworthy, in the sense that they have paid toward finances on the credit report. And that can be used as proof of having a low risk profile,” Moonsamy said.
She noted that while young people are warned about the dangers of debt, avoiding debt entirely may not be the ultimate answer.
According to Moonsamy, Generation Z, who are people born roughly between 1997 and 2012, make up less than 1% of the entire credit market.
This, she said, shows how young people are doing things differently in that they are not pursuing credit and are keeping themselves out of the credit market.
“It's important not to steer clear of the things that could potentially put us into a "debt trap", but rather to understand how they work so they can be used to our advantage."
The first key piece of advice that Moonsamy gives is mastering the art of budgeting.
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“It's about understanding your financial position. How much do I earn? How much comes into my bank account, and what do I spend it on? And a little exercise of budgeting can help us make better, informed financial decisions.”
She notes that analysing finances this way won’t necessarily mean there’s a surplus of money every month, but it will push young people to think about how they spend it.
“It might be that I need help. It might show you that we have an overspending issue or that you don't understand the value of some of the expenses you have tied to our bank accounts. Whatever the outcome is, it's important that we know it."
“My advice to young people is to understand your financial position,” she said.