The countdown to Black Friday has begun, and before you start thinking about filling your cart, perhaps you need to first think carefully about incurring unnecessary debt.
As Black Friday continues to gain momentum in SA, the 2024 edition witnessed a substantial surge in consumer spending. Capitec Bank reported a 27% year-on-year increase, with clients collectively spending R25.45bn over the weekend. FNB processed over R5.4bn in transactions, highlighting the event’s economic significance.
Avoid the temptation to purchase non-essential items, even if they appear to be heavily discounted.
— Chris Coetzee, CEO of FinFix
While these figures underscore the event’s economic impact, they also raise concerns about consumer behaviour, particularly regarding overspending and the potential for accumulating high-interest debt.
Chris Coetzee, CEO of FinFix, and other financial experts caution that the allure of “limited time offers” can lead to impulsive purchasing decisions, often financed through credit, which may not be sustainable in the long term.
The psychology behind impulsive spending
Coetzee said retailers employ various psychological tactics to encourage spending during Black Friday sales. Strategies such as urgency, seen in the words “limited stock”; scarcity, like “only three left”; and the fear of missing out, “FOMO”, are designed to override rational decision-making processes, he said.
“The rapid adoption of BNPL [Buy Now, Pay Later] services in SA further raises concerns. While these services offer short-term financial relief, they can contribute to long-term debt accumulation,” said Coetzee.
The National Credit Regulator’s Credit Bureau Monitor recently reported that 23% of consumers missed instalment payments, indicating that a significant portion of the population is struggling with debt repayment.
“Additionally, the South African Reserve Bank’s Payments Study report highlighted that a substantial number of consumers are increasingly relying on digital credit options, including BNPL, to finance their purchases. This shift towards digital credit, coupled with existing financial pressures, exacerbates the risk of over-indebtedness,” said Coetzee.
The debt trap: Short-term gain, long-term pain
Relying on credit to fund Black Friday purchases can lead to significant financial strain, said Coetzee.
“High interest rates on unsecured loans exacerbate the situation. Unplanned credit-based purchases can quickly escalate into unmanageable debt, impacting individuals’ ability to save for essential goals such as home ownership, education, and retirement,” Coetzee said.
Strategies for smart shopping
Coetzee said to navigate Black Friday sales without falling into debt traps, one must consider the following strategies:
- Identify essential items you need and set a strict budget. Avoid the temptation to purchase non-essential items, even if they appear to be heavily discounted. Understand your spending habits and follow simple principles to make informed decisions.
- If possible, refrain from using credit to finance purchases. If credit is necessary, ensure you understand the repayment terms and interest rates. It’s important to exercise caution and self-discipline when managing money to avoid overspending.
- Do your research. Compare prices across different retailers to ensure that the discounts are genuine and not inflated. Understanding this can help you make more rational purchasing decisions.
- Seek advice from financial professionals to assess the affordability of significant purchases and to develop a sustainable financial plan. Financial literacy is the most powerful tool against unplanned spending and rampant fraud.
Don’t spend more than you can afford
While Black Friday presents opportunities for savings, it also poses risks of overspending and accumulating debt.
While loans offer immediate purchasing power, they can also lead to further financial challenges when you fail to manage repayment schedules effectively.
“The lack of comprehensive credit reporting for BNPL transactions, for example, means that consumers may accumulate multiple debts across different platforms without realising the full extent of their financial obligations,” said Coetzee.
“This lack of visibility can result in escalating interest charges, deepening the cycle of debt. By approaching the event with a disciplined and informed mindset, consumers can capitalise on genuine deals without compromising their financial well-being.”
Sowetan
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