South African shoppers' guide to avoiding the debt trap on Black Friday

As Black Friday continues to gain momentum in South Africa, the 2024 edition witnessed a substantial surge in consumer spending. Capitec reported a 27% year-on-year increase, with clients collectively spending R25.45 billion over the weekend. Similarly, FNB processed over R5.4 billion in transactions, highlighting the event's economic significance.

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. 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

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 3 left, and the fear of missing out, FOMO, are designed to override rational decision-making processes.

The rapid adoption of BNPL services in South Africa further raises concerns. While these services offer short-term financial relief, they can contribute to long-term debt accumulation. The National Credit Regulator's Credit Bureau Monitor in March 2023 reported that 23% of consumers missed installment payments, indicating a significant portion of the population 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.

The debt trap: short-term gain, long-term pain

Relying on credit to fund Black Friday purchases can lead to significant financial strain. 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 homeownership, education, and retirement.

Strategies for smart shopping

To navigate Black Friday sales without falling into debt traps, 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. Experts recommend understanding your spending habits and following 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.

It’s also important to seek advice from financial professionals to assess the affordability of significant purchases and to develop a sustainable financial plan. Financial literacy is considered 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. Especially when using loans to fund the purchase. While offering immediate purchasing power, this can 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 realizing the full extent of their financial obligations. 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 capitalize on genuine deals without compromising their financial well-being.

* Coetzee is the CEO of FinFix

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