Student debts rise sharply

A recent youth spending report by Student Village and Unisa found that student debt has more than doubled in the past three years, with 43% of students admitting to owning a credit card in the 2012 survey, compared with 9.5% in 2010.

Banking group Absa holds the largest slice of the student debt pie, with 40%, followed by Standard Bank with 32%, the report said.

The survey of 1,220 students from the major metropolitan universities -the Universities of Cape Town, Stellenbosch, Johannesburg and Witwatersrand - revealed that 77% of the participants received income from parents or guardians.

Absa retail banking head Arrie Rautenbach told Business Day earlier this week that the number of new accounts opened by the bank for consumers in the 18 to 24 age group had doubled since 2010.

However, he said that credit card customers in that age range make up less than 1% of total credit card lending.

Rautenbach said Absa offered credit cards to students who already had an account with the bank and were registered as full-time students at an accredited institution. "At a very low credit limit, Absa's student credit card allows students to learn to handle their debts responsibly," he said.

When the Reserve Bank released its financial report for the year to March, it reported that unsecured lending by the six commercial banks had increased from R321.36bn in December to R441.27bn last December. Unsecured lending to retail markets included credit cards, personal loans and overdrafts.

Compliance

National Credit Regulator (NCR) chief operating officer Obed Tongoane said lending money to youths was permissible as long as it was in compliance with the credit act.

"It depends on the risk appetite of the credit provider. However, agreements must comply with the National Credit Act, because before credit providers extend credit to consumers, they are required to conduct an affordability assessment. This is done by assessing the consumer's current levels of debts," said Tongoane.

"If at the time of signing the credit agreement, the guardian signed surety for the student, then the guardian will be liable for the credit. However, if the youth is the one who signed the credit agreement, then they will be liable for the debt," he said.

The NCR has reported that of the 19.6m credit-active consumers, more than 9.25m have impaired records.

Standard Bank spokesman Ross Linstrom said 2% of its debts belonged to youth in the 18 to 25 age group, who held about 1% of total outstanding balances.

"There has been a steady growth in the youth base over the past 18 months in terms of total number of accounts opened. The next age category (26 to 35) holds 40% accounts of the total credit card base," he said.

Debtbusters, a debt counselling firm based in Cape Town, said unsecured credit rates have risen by 40% in the past few years.

Company spokeswoman Kelli Knutsen said there had been an increase in the number of young South African consumers in debt.

"The average age of 'youth' falling into debt has gone from 42 years old to 32 just in the last five years. The recommended age to start saving for retirement is 23 - therefore, only once these young consumers have got rid of their debt, which will take five years, will they be able to save for retirement. About 33% of South Africans are still in debt by the time they retire," she said.

Source: Business Day via I-Net Bridge