While the perception exists that most South Africans applying for unsecured loans are doing so as a result of living beyond their means, a recent survey by Wonga.com has revealed that the primary reason for these applications is to cover unexpected costs.
The survey, which was conducted among over 12,000 Wonga SA customers, found that nearly half (45%) of respondents have used a loan to cover an unexpected and important expense.
According to the survey results, the top reasons for applying for a loan include: essential household items (22%), urgent bills (18%), school/college fees (14%), motoring costs (12%), utility bills (10%) and dentistry/medical expenses (7%).
Kevin Hurwitz, CEO of Wonga.com SA, said that while one could argue that costs such as school or college fees should be budgeted for, it is clear that most loan applications stem from unforeseen incidents, rather than for frivolous purposes.
In addition, when asked whether their monthly salary covers their monthly expenses, 43% of respondents answered "Yes, unless there is an emergency (e.g. car breaks down)", while 36% answered "always" or "usually".
Hurwitz said that these statistics are important as they suggest failing to factor in the possibility of unexpected expenses is one of the key reasons for the growth in the number of consumers applying for short-term loans, rather than irresponsible behaviour.
Few have "rainy day" funds
This sentiment is mirrored by the 2012 Financial Literacy in South Africa report commissioned by the Financial Services Board (FSB), which found that less than one-third of South Africans (29%) reported setting aside emergency or rainy-day funds that would cover expenses for at least three months.
"This lack of financial awareness, paired with the rising cost of living, means that most people are simply not budgeting for a rainy day. It is critical that, wherever possible, people need to set aside money each month to cover 'unforeseen' expenses," said Hurwitz.