Latest / The Swan Effect - Creating and Sustaining Your Financial Wellbeing / S5 E8 Who Benefits When We Borrow

Transcript

S5 E8 Who Benefits When We Borrow · The Swan Effect - Creating and Sustaining Your Financial Wellbeing

• 0:00
  Arthi Rabikrisson: Your legacy isn't just about numbers.
• 0:04
  Arthi Rabikrisson: It's about the confidence that comes with knowing your wealth is expertly managed.
• 0:09
  Arthi Rabikrisson: At Old Mutual Wealth, we offer solutions that go beyond investment management.
• 0:15
  Arthi Rabikrisson: We're your trusted partner in achieving financial success.
• 0:19
  Arthi Rabikrisson: Together with your financial planner, we uncover what matters most to you.
• 0:24
  Arthi Rabikrisson: Crafting a personalized plan tailored to your unique goals.
• 0:29
  Arthi Rabikrisson: Backed by a team dedicated to your wealth journey, we provide innovative strategies, in-depth research, and award-winning investment expertise.
• 0:39
  Arthi Rabikrisson: Partner with us to take your wealth further with advice-led personalized wealth management, offering clients and financial planners a full suite of industry-leading investment solutions.
• 0:52
  Arthi Rabikrisson: Visit www.oldmutual.co.za / wealth to learn more.
• 1:00
  Arthi Rabikrisson: Hi there, I'm Arth Rabikrisson.
• 1:06
  Malika Petersen: Hello, I'm Malika Petersen.
• 1:07
  Malika Petersen: Welcome to
• 1:09
  Arthi Rabikrisson: the Swan Effect Podcast.
• 1:11
  Arthi Rabikrisson: We're your go-to podcast to simplify the complexities of money management, investing, and wealth management.
• 1:19
  Malika Petersen: So that you can gain confidence in your relationship with money and become financially literate, independent, and free.
• 1:28
  Arthi Rabikrisson: That first step towards freedom is knowledge.
• 1:30
  Arthi Rabikrisson: And you can start regaining that right now by listening to this upcoming episode.
• 1:44
  Arthi Rabikrisson: A lot of really large hints that Christmas isn't far off is making itself known across the world right now, with retailers really opening their festive season stock for purchase.
• 1:56
  Arthi Rabikrisson: Oh my word, have you seen this, Malika?
• 1:58
  Arthi Rabikrisson: And hi as well.
• 2:00
  Malika Petersen: Hi, Arthi, hi listeners.
• 2:02
  Malika Petersen: Yes, of course.
• 2:04
  Malika Petersen: It's hard not to notice.
• 2:06
  Malika Petersen: And I think, you know, that's why we've kind of decided that from the death, death, and factor draw, we have been opening and diving into the season.
• 2:16
  Malika Petersen: We're gonna now revert back to the debt section again.
• 2:20
  Malika Petersen: Precisely because these marketers that prompt us into using debt, they're all around us already, right?
• 2:28
  Malika Petersen: So we're gonna do it from a different angle this time.
• 2:32
  Arthi Rabikrisson: Absolutely agreed, Malika.
• 2:34
  Arthi Rabikrisson: So to kick us off, here's a question, everyone.
• 2:37
  Arthi Rabikrisson: Who benefits when we borrow?
• 2:40
  Arthi Rabikrisson: Because at first, the answer feels pretty obvious.
• 2:44
  Arthi Rabikrisson: You borrow, you get to do the thing you need to do.
• 2:47
  Arthi Rabikrisson: Perhaps, you know, it's paying for a qualification or buying a car that gets you to work, or even fixing the fridge that decided to resign without any notice.
• 2:58
  Malika Petersen: Yeah, we know fridges have a special talent for choosing the worst possible payday, right?
• 3:03
  Malika Petersen: It's true.
• 3:04
  Malika Petersen: Absolutely.
• 3:05
  Malika Petersen: And I mean, in that moment, the loan can be like really, right?
• 3:10
  Malika Petersen: It may genuinely actually be really.
• 3:12
  Malika Petersen: But the money comes once, and the repayment comes back every single month.
• 3:19
  Arthi Rabikrisson: Oh, that is such a truth, Malika.
• 3:21
  Arthi Rabikrisson: You know, so we decided, Malika and I decided we want to follow that money past that moment of approval.
• 3:26
  Arthi Rabikrisson: In other words, let's just go a little bit behind the curtain, everybody.
• 3:30
  Arthi Rabikrisson: What did the borrower gain?
• 3:32
  Arthi Rabikrisson: You know, you as the borrower, what what did you agree to pay for that access?
• 3:36
  Arthi Rabikrisson: Who absorbs the shock of the income or if life changes?
• 3:41
  Arthi Rabikrisson: You know, we're gonna actually talk through a couple of real sort of stories as well.
• 3:45
  Arthi Rabikrisson: And don't worry, we're not gonna turn those into any kind of cautionary tales.
• 3:49
  Arthi Rabikrisson: But you know what, we really want to be able to showcase some of these things that are happening with us right now.
• 3:54
  Malika Petersen: Yeah.
• 3:54
  Malika Petersen: Yeah, and don't spend like half an hour telling people to stop buying coffee, right?
• 4:00
  Malika Petersen: I think if cappuccino could solve a structural gig problem, we'd all be an excellent shake guy.
• 4:07
  Malika Petersen: No, yes, absolutely.
• 4:08
  Malika Petersen: But I keep thinking about how different a loan can look from the day you take it out to the day you make the 15th or last payment, right?
• 4:18
  Malika Petersen: On a day one, you might be looking at a solution.
• 4:23
  Malika Petersen: A kind of by month 15, you might be looking at a debit order and why is this a little room left in my salary?
• 4:31
  Arthi Rabikrisson: Yes, Malika.
• 4:32
  Arthi Rabikrisson: And you know, we can be too quick to judge that very first decision with information that we don't actually have at the time.
• 4:39
  Arthi Rabikrisson: You know, think of the unexpected medical cost or even a reliable vehicle that enables you to get that job that you need.
• 4:46
  Arthi Rabikrisson: Okay.
• 4:47
  Arthi Rabikrisson: So the benefit is very real.
• 4:49
  Arthi Rabikrisson: You know, it would be dishonest for us to say that nobody should ever borrow.
• 4:53
  Arthi Rabikrisson: But it's also just as dishonest to pretend that the price and the risk are the same for everyone on that borrowing.
• 5:01
  Malika Petersen: I think, you know, a person with savings may use credit because it's convenient and you pay it off quickly, right?
• 5:10
  Malika Petersen: Another person may borrow for the same expense, but there's no alternative, right?
• 5:17
  Malika Petersen: They have no cash available.
• 5:19
  Malika Petersen: You know, they will need the full dependent term.
• 5:23
  Malika Petersen: Even if both are up a credit, the ability to carry that debt is very, very different.
• 5:30
  Arthi Rabikrisson: I think that really actually gives us our first distinction, then, Malika.
• 5:34
  Arthi Rabikrisson: Access, everyone, is not the same as affordability.
• 5:37
  Arthi Rabikrisson: You know, being approved tells you that someone is willing to lend you, but it doesn't tell you how comfortable the repayments will be in your actual life with things like groceries, transport, dependence, and even the little surprises that don't appear on a neat form.
• 5:54
  Arthi Rabikrisson: I mean, it wasn't so long ago, Malika, where actually I wasn't looking for credit.
• 5:57
  Arthi Rabikrisson: It was actually offered to me.
• 5:59
  Arthi Rabikrisson: And when I saw the amount, I was like, hang on, this is multiples of my salary that was being offered.
• 6:07
  Arthi Rabikrisson: And, you know, because I'm the kind of person who's pretty, you know, I'd question these things, I got in touch with that provider.
• 6:14
  Arthi Rabikrisson: It was one of our banks, and I said, but on what basis are you actually offering me this?
• 6:19
  Arthi Rabikrisson: And it's exactly to this point that the access was being easily provided and I could have easily taken it.
• 6:26
  Arthi Rabikrisson: But man oh man, if I needed to repay, having used that full amount, boy, I would be in hot water.
• 6:32
  Arthi Rabikrisson: Yeah.
• 6:33
  Malika Petersen: Yeah.
• 6:33
  Malika Petersen: And I think, I mean, it's important to note that before we kind of make the lender seem like the own charactering story, right?
• 6:41
  Malika Petersen: Yeah, we need to ask, what is the credit actually doing?
• 6:45
  Arthi Rabikrisson: Right.
• 6:46
  Malika Petersen: I mean, if it's helping somebody to earn an income or secure a very useful asset, then the borrower may actually benefit from that scenario.
• 6:56
  Malika Petersen: Like the seller gets paid, the lender earns from the agreement, and there can be a genuine exchange of value.
• 7:04
  Malika Petersen: The harder question, however, is how much each party is feed, right?
• 7:08
  Malika Petersen: And whether that value at the end of the day is sufficient enough to cover the actual repayment.
• 7:16
  Malika Petersen: And what happens?
• 7:17
  Malika Petersen: The plan doesn't work out.
• 7:19
  Malika Petersen: What then?
• 7:21
  Arthi Rabikrisson: Exactly.
• 7:22
  Arthi Rabikrisson: So when I hear things like good debt and bad debt, I actually want to ask one more question.
• 7:28
  Arthi Rabikrisson: Good for whom and under what conditions?
• 7:31
  Arthi Rabikrisson: You know, a degree can be valuable, but unpaid fee, that'll actually keep a graduate from moving forward.
• 7:38
  Arthi Rabikrisson: We've seen this happen so many times, right, Malika?
• 7:41
  Arthi Rabikrisson: A car can get you to a job, but a repayment that leaves no room to maintain the car, that can actually become a problem all on its own.
• 7:51
  Arthi Rabikrisson: So I think the purpose really matters, and also the terms and a person's circumstances must matter too.
• 7:59
  Malika Petersen: Yeah, I think let's kind of put a person into that on the table.
• 8:02
  Malika Petersen: So imagine Nandi, right?
• 8:04
  Malika Petersen: Nandy's a locomotive driver and a shop steward at a mine.
• 8:09
  Malika Petersen: She is so great, Miller, right?
• 8:12
  Malika Petersen: She's raving three children, her husband is unemployed, and other relatives are relying on her too.
• 8:19
  Malika Petersen: When she started working, the demands on her salary were greater than what she expected.
• 8:25
  Malika Petersen: And she got a loan, right?
• 8:27
  Malika Petersen: Eventually more loans followed because let's understand, when she takes out the loan, and even more demands on her salary than she imagined.
• 8:38
  Malika Petersen: Right.
• 8:39
  Malika Petersen: So she takes out more loans, right.
• 8:41
  Malika Petersen: Now the deductions that are linked to her debt, again, it's taken away from her pay, the amount of money that she before she can even decide how to yield it.
• 8:55
  Arthi Rabikrisson: You know, as you're saying that, what's really staying with me is this distance between, you know, I've got a job I can provide, right?
• 9:01
  Arthi Rabikrisson: In this situation with uh Nandi.
• 9:04
  Arthi Rabikrisson: And then the other piece being, but my salary is already committed before my month begins.
• 9:10
  Arthi Rabikrisson: So I mean, in this kind of case, Nandi isn't just borrowing because she doesn't care about her family.
• 9:15
  Arthi Rabikrisson: If anything, providing is the whole point.
• 9:17
  Arthi Rabikrisson: And that is why I wouldn't open a conversation with someone like Nandi by saying, oh, you should have budgeted better, because there may be other decisions to examine.
• 9:26
  Arthi Rabikrisson: You know, in this case, she was also trying to maybe meet more claims on the one salary, like you just said, Malika, that it could easily then carry that.
• 9:36
  Arthi Rabikrisson: And here's the thing, everybody, we can hold both sides of this, right?
• 9:40
  Arthi Rabikrisson: We can hold both the facts.
• 9:41
  Arthi Rabikrisson: The needs are real.
• 9:43
  Arthi Rabikrisson: Unfortunately, the repayment arrangement probably has even greater consequences than we actually realize.
• 9:49
  Malika Petersen: Absolutely.
• 9:50
  Malika Petersen: If you have things, you know, when Nandi realized that all is not well, she joined a financial awareness program that helped her address the deduction, right?
• 10:01
  Malika Petersen: And after a long period of time, her salary started to feel like overkane.
• 10:07
  Malika Petersen: But what the stories really meant to illustrate is that we can see how much power there is in looking closely at what is coming off a paysload and whether each amount is actually valuable, valid and affordable.
• 10:23
  Arthi Rabikrisson: Hmm.
• 10:24
  Arthi Rabikrisson: You know, I really want to pause on that.
• 10:26
  Arthi Rabikrisson: You know, the question coming to mind is who benefited when the loan was first taken?
• 10:31
  Arthi Rabikrisson: So in this story, Nandi's household got the money to meet those immediate needs, the lenders to earn because they provided it.
• 10:41
  Arthi Rabikrisson: And then think about now who carried the risk when the demands on the salary continued, right?
• 10:47
  Arthi Rabikrisson: It was Nandi, and of course the people who depended on her as well.
• 10:50
  Arthi Rabikrisson: And then who actually benefited when somebody helped review what was being deducted?
• 10:55
  Arthi Rabikrisson: You know, it was her household that was able to gain some room to breathe again, which is, you know, all these different pieces in the cycle, Malika, coming together.
• 11:03
  Arthi Rabikrisson: Absolutely.
• 11:05
  Malika Petersen: And I mean, it has to be said that there's a temptation to make the ending that she learned a lesson.
• 11:11
  Malika Petersen: And I don't think that's what we're trying to say here.
• 11:16
  Malika Petersen: The stronger question is what might have changed sooner if she had been able to see the forecast and get this for how before the deductions, you know, swallowed up all of her income.
• 11:30
  Arthi Rabikrisson: Yeah, absolutely.
• 11:32
  Arthi Rabikrisson: And you know, it's harking back to something we've spoken across this season and previous seasons, everybody, and that is about the systems.
• 11:40
  Arthi Rabikrisson: And this is where systems stop sounding abstract.
• 11:43
  Arthi Rabikrisson: Okay.
• 11:43
  Arthi Rabikrisson: A system is, for example, the form you sign, or the way affordability is checked, the way even the fees and interest is shown, right?
• 11:53
  Arthi Rabikrisson: Even in the way there's a collection process or the ability to challenge an error.
• 11:59
  Arthi Rabikrisson: You know, all of these details are the things that are meeting a person at the very ordinary kitchen table that you're having to figure out.
• 12:06
  Arthi Rabikrisson: So having a system to check these, very, very important.
• 12:11
  Malika Petersen: Yeah.
• 12:11
  Malika Petersen: And listen, somebody listening to us right now might be thinking that's me, right?
• 12:15
  Malika Petersen: I work, my money's already left before I get it, right?
• 12:19
  Malika Petersen: Yeah.
• 12:20
  Malika Petersen: We don't have the magic fixes with that silver bullet.
• 12:25
  Arthi Rabikrisson: Yeah.
• 12:26
  Malika Petersen: But it can help you identify the questions to ask and the documents that you need to pick up.
• 12:33
  Arthi Rabikrisson: Yeah, absolutely.
• 12:34
  Arthi Rabikrisson: I mean, okay, let's run a simple thought experiment here, Malika.
• 12:37
  Arthi Rabikrisson: Okay, suppose I need to borrow something important.
• 12:40
  Arthi Rabikrisson: Okay.
• 12:40
  Arthi Rabikrisson: First, I receive money or the item that I need.
• 12:45
  Arthi Rabikrisson: The person selling the item, let's say, receives payment.
• 12:49
  Arthi Rabikrisson: Okay.
• 12:49
  Arthi Rabikrisson: The lender expects to recover the amount given to me and also earn the agreed interest and all the fees and charges over that time.
• 12:58
  Arthi Rabikrisson: So if I repay as planned, you know, all of these interests can be aligned, huh?
• 13:04
  Malika Petersen: Yes, but if you miss a payment, right?
• 13:07
  Malika Petersen: Yeah.
• 13:08
  Malika Petersen: Your need hasn't vanished.
• 13:10
  Malika Petersen: Yes.
• 13:11
  Malika Petersen: The instalment is still you, right?
• 13:13
  Malika Petersen: Yeah, additional costs, the consequences, etc., they are still very real under that agreement.
• 13:20
  Malika Petersen: So you may have less choice on how to use next month's income because of that efficiently too.
• 13:26
  Malika Petersen: So when we ask about who benefits, we need to ask who has the flexibility to absorb if there was a setback, for example.
• 13:36
  Arthi Rabikrisson: And isn't this, I mean, please do hear the nuance in what Malika is saying.
• 13:39
  Arthi Rabikrisson: You know, lenders take risks and provide a service.
• 13:43
  Arthi Rabikrisson: Earning interest is not by itself proof that something is unfair.
• 13:47
  Arthi Rabikrisson: If anything, you know, borrowers also have obligations.
• 13:50
  Arthi Rabikrisson: But, you know, the fairness that we're requiring, you know, means that we need to examine whether the price was clear, the lending was suitable, and actually whether the person had a meaningful way to question if they noted a mistake.
• 14:04
  Malika Petersen: And I think, you know, of those adverts where monkey instalment is enormous on the screen.
• 14:11
  Arthi Rabikrisson: Yeah.
• 14:11
  Malika Petersen: And the total cost seems to be like a magnifying glass.
• 14:14
  Malika Petersen: Oh my word, yes.
• 14:16
  Malika Petersen: Right.
• 14:17
  Malika Petersen: We naturally can I manage revealing question is what will this have cost me when I make the last payment?
• 14:26
  Malika Petersen: So what is the long-term total of the thing?
• 14:30
  Malika Petersen: And low monthly amount can sometimes cause quite a big consequence in the long term.
• 14:37
  Arthi Rabikrisson: Yeah.
• 14:37
  Arthi Rabikrisson: Oh my gosh, yes.
• 14:39
  Arthi Rabikrisson: That is so true.
• 14:40
  Arthi Rabikrisson: And especially the tiny writing, oh my gosh, irritates the life out of me as well.
• 14:44
  Arthi Rabikrisson: But I love the way we're turning this question.
• 14:46
  Arthi Rabikrisson: So, listeners, I mean, here's something you could do right now.
• 14:49
  Arthi Rabikrisson: Think of just one of your debts.
• 14:51
  Arthi Rabikrisson: What did it make possible when you took that debt, first of all?
• 14:54
  Arthi Rabikrisson: Identify that, right?
• 14:55
  Arthi Rabikrisson: Then think about has it delivered that benefit to you or family members, whoever it was for.
• 15:01
  Arthi Rabikrisson: Then think about, well, what is it costing you now in money and in room to make other decisions as well?
• 15:08
  Arthi Rabikrisson: You're likely gonna find everyone that probably gonna answer, oh, yes, this was worthwhile.
• 15:13
  Arthi Rabikrisson: But then you're probably gonna also say, it's a little bit more complicated now.
• 15:17
  Arthi Rabikrisson: And as we said earlier, both facts are gonna be true, right?
• 15:20
  Arthi Rabikrisson: So either answer is just gonna be useful.
• 15:22
  Malika Petersen: Yeah.
• 15:23
  Malika Petersen: And I think it's important to note that, I mean, we've said this in previous episodes, that the benefit or the value of what you are using the debt for should outlast how long you're paying the debt for, right?
• 15:37
  Malika Petersen: You've used this example before.
• 15:39
  Malika Petersen: If you're gonna take a car, for example, and it's a seven-year debt, you must make sure it's a car that's gonna last more than seven years.
• 15:46
  Malika Petersen: But because it's pointless to buy something that where the debt outlasts.
• 15:51
  Malika Petersen: Yeah.
• 15:51
  Malika Petersen: And another question, you could also ask yourself do I have any other options in the moment when the need arises?
• 15:59
  Malika Petersen: Like we must be very careful about telling people to shop around as if everybody's got time, or if they've got bargaining power, other attractive offers waiting for that.
• 16:10
  Malika Petersen: If the need is urgent, often people's options are narrow.
• 16:15
  Malika Petersen: And that makes care information even more important and more valuable.
• 16:20
  Arthi Rabikrisson: Yeah, for sure.
• 16:21
  Arthi Rabikrisson: And thing, it's making me think of now a very different debt story.
• 16:24
  Arthi Rabikrisson: Okay, so let's make this a little bit more real.
• 16:26
  Arthi Rabikrisson: One where the amount outstanding is relatively small beside the value of what was at stake.
• 16:32
  Malika Petersen: Yes.
• 16:33
  Malika Petersen: So let's, you know, consider an urgent decision for a moment.
• 16:36
  Malika Petersen: Let's imagine I think your washing machine is broke.
• 16:40
  Malika Petersen: Hypothetical, right?
• 16:43
  Arthi Rabikrisson: Well, it's not even hypothetical, Malika.
• 16:44
  Arthi Rabikrisson: Actually, I did have a broken washing machine a couple of years ago, and apparently it's still being fixed.
• 16:51
  Arthi Rabikrisson: But anyway, that's a story for another time.
• 16:53
  Malika Petersen: That sounds super frustrating, right?
• 16:55
  Malika Petersen: But I mean, in our scenario, let's assume you don't have spare cash to replace it.
• 17:03
  Malika Petersen: Okay.
• 17:03
  Malika Petersen: So now your laundry is piling up, um, and and now you go to the shop and somebody offers you a repayment plan.
• 17:12
  Malika Petersen: Yeah.
• 17:13
  Malika Petersen: What might you hear in that conversation?
• 17:17
  Arthi Rabikrisson: Oh, yeah.
• 17:17
  Arthi Rabikrisson: I'm definitely gonna hear something like, oh, you qualify for this and it only costs this much each month, right?
• 17:25
  Arthi Rabikrisson: And at face value, both statements might be absolutely true.
• 17:29
  Arthi Rabikrisson: Okay, but then here's where my brain is gonna go.
• 17:32
  Arthi Rabikrisson: I'd want to take a moment to ask, well, what do each of these items cost for cash?
• 17:37
  Arthi Rabikrisson: What is the full repayment amount that I'd need to be paying away?
• 17:42
  Arthi Rabikrisson: How long also do I need to pay for this?
• 17:45
  Arthi Rabikrisson: And in fact, have you added anything else on that you haven't made me away upfront about?
• 17:51
  Arthi Rabikrisson: You know, when you're standing there, everybody, with a broken machine back at home, the monthly figure can actually sound like, oh, that's the whole answer.
• 17:58
  Malika Petersen: So that's very doable.
• 17:59
  Malika Petersen: And I mean, there might also be a cheaper repair or a second hand option or somebody who could loan you a washing machine for a bit, right?
• 18:09
  Malika Petersen: Yeah, yeah.
• 18:10
  Malika Petersen: Or there might be none of those.
• 18:12
  Malika Petersen: Yeah, yeah.
• 18:13
  Malika Petersen: But I think let's, you know, not assume that you have limited all other options.
• 18:19
  Malika Petersen: The thing is that the shop needs to make the offer visible now so that you can compare it with whatever other choices you may have.
• 18:28
  Arthi Rabikrisson: Yeah, absolutely.
• 18:30
  Arthi Rabikrisson: And we don't often get to do that, or we don't think deliberately about that, you know, to put them up against each other and do that comparison.
• 18:37
  Arthi Rabikrisson: Okay, I'd probably like to ask a little question that's a bit uncomfortable now for everyone to kind of think about.
• 18:44
  Arthi Rabikrisson: Because we don't like to think about this.
• 18:45
  Arthi Rabikrisson: But the question is, everyone, if one month goes badly, what happens then?
• 18:51
  Arthi Rabikrisson: I'm not asking this because I'm expecting any kind of failure, but because, you know, when you're taking out a loan, like let's say for this washing machine, I'm making a promise on my future income about making those repayments, you know?
• 19:05
  Arthi Rabikrisson: And future income, as we know, is never entirely guaranteed.
• 19:09
  Arthi Rabikrisson: In my case, as you know, I'm a business owner, my income is variable.
• 19:13
  Arthi Rabikrisson: Okay.
• 19:13
  Arthi Rabikrisson: So, you know, if a listener is like me, where every rand, if next month's salary is actually going into all these different things that you pay away, including now an instalment, this agreement for a loan in front of us is going to be pretty fragile.
• 19:29
  Arthi Rabikrisson: However, respectable the reason for us actually doing that borrowing.
• 19:33
  Malika Petersen: Yeah.
• 19:33
  Malika Petersen: And I mean, I can hear someone saying, everything that we're saying, however, at the end of the day, the washing's all need to be done.
• 19:41
  Malika Petersen: And they see that offer for terms, they're not seeing you can pay it off at this amount, they're hearing my washing problem goes away.
• 19:50
  Malika Petersen: Right.
• 19:51
  Arthi Rabikrisson: Yeah.
• 19:51
  Malika Petersen: And awareness doesn't mean that cash suddenly appears out of nowhere.
• 19:57
  Malika Petersen: Sometimes the most responsible choice available is a difficult one.
• 20:02
  Malika Petersen: But we could at least, you know, kind of insist that the costs are legible, that we fully understand them.
• 20:11
  Malika Petersen: You cannot make an informed choice with only the attractive and positive part of the offering front of you.
• 20:19
  Arthi Rabikrisson: Oh, absolutely, Malika.
• 20:21
  Arthi Rabikrisson: Absolutely.
• 20:22
  Arthi Rabikrisson: And I think you know, it does shift some of the responsibility to the people who design and sell credit.
• 20:28
  Arthi Rabikrisson: I mean, how is the total cost presented, for example?
• 20:32
  Arthi Rabikrisson: What questions are asked about affordability when you're checking and offering this to people?
• 20:37
  Arthi Rabikrisson: Is the customer actually being rushed to sign on the dotted line?
• 20:41
  Arthi Rabikrisson: Or actually, are they given some room to read?
• 20:42
  Arthi Rabikrisson: Oh my word.
• 20:43
  Arthi Rabikrisson: You know, when somebody phones you with a new cell phone offering or contract and they literally tell you, for example, the offer is only valid on this call.
• 20:52
  Arthi Rabikrisson: I hate that.
• 20:53
  Arthi Rabikrisson: Absolutely hate that.
• 20:55
  Arthi Rabikrisson: So that's an example, right?
• 20:56
  Arthi Rabikrisson: And then what happens when there's a concern, right?
• 20:59
  Arthi Rabikrisson: When you need to phone in and like, who do you contact?
• 21:02
  Arthi Rabikrisson: You know, so all of these choices will actually shape the borrower's choice.
• 21:06
  Arthi Rabikrisson: It's easy to talk about a bad decision, as if that decision actually arrived in a vacuum, but no, there's a whole host of different parties.
• 21:14
  Arthi Rabikrisson: But that being said, as well, because we're aware that this is what's happening, I think what we're trying to say, as Malika and me, is we want to have you in that position where you can ask these questions deliberately, because they may not easily volunteer this information to you.
• 21:29
  Arthi Rabikrisson: Okay.
• 21:30
  Malika Petersen: By the way, just for our listening, big red flag.
• 21:32
  Malika Petersen: Somebody found you and says if the offer is only valid, you need to accept it right now.
• 21:36
  Malika Petersen: Give me your bank deeper size, please.
• 21:38
  Malika Petersen: That's the immediate answer should be no.
• 21:41
  Malika Petersen: Uh no, no.
• 21:42
  Malika Petersen: Anything still yes, right.
• 21:44
  Malika Petersen: But I think there are other actors please, right?
• 21:47
  Malika Petersen: An employer can help a worker to better understand their pay trip deductions, right?
• 21:53
  Malika Petersen: And and to find appropriate assistance.
• 21:56
  Malika Petersen: I know many employment firms do offer.
• 21:59
  Malika Petersen: Finanning counselling, etc., etc.
• 22:03
  Malika Petersen: A university can examine how outstanding fees affect access to results or graduation and kind of support.
• 22:12
  Malika Petersen: You know, what is the support that exists?
• 22:14
  Malika Petersen: An ombudsman can investigate, dispute.
• 22:16
  Malika Petersen: I mean, these are actions that don't cancel, erase what a person owns, but it can help like the process better and fairer.
• 22:26
  Arthi Rabikrisson: And I don't want our listeners to hear what we're saying and what you're suggesting, Malika, as oh, we need to wait for an institution to save us.
• 22:33
  Arthi Rabikrisson: No, no.
• 22:34
  Arthi Rabikrisson: You know, everyone, you can actually ask for this information and then keep records.
• 22:38
  Arthi Rabikrisson: If something is not feeling or sounding right or looking right on statements that you're receiving, raise a concern early.
• 22:45
  Arthi Rabikrisson: Seek professional, qualified help as well, especially if you're realizing that the debt is becoming unmanageable.
• 22:53
  Arthi Rabikrisson: But at the same time, you know, institutions also have decisions to make about how credit is offered, collected, and even explained.
• 23:00
  Arthi Rabikrisson: So in my mind, both sides of the conversation actually matter.
• 23:04
  Malika Petersen: Yeah.
• 23:04
  Malika Petersen: And I mean, this is the bit that I wish more conversations about debt action pleading.
• 23:10
  Malika Petersen: The take responsibility bit, right?
• 23:12
  Malika Petersen: It's a useful sentence only if you say what each and every party is responsible for.
• 23:19
  Malika Petersen: The borrower has a responsibility and a commitment.
• 23:22
  Malika Petersen: The lender has obligations as the VA demon, right?
• 23:26
  Malika Petersen: The seller has a role in presenting the purchase property.
• 23:30
  Malika Petersen: And if an amount is disputed, the process has to allow.
• 23:35
  Malika Petersen: It means that the process has failed, ultimately.
• 23:37
  Malika Petersen: Also, it has to allow that the question has to be heard.
• 23:42
  Arthi Rabikrisson: Hmm.
• 23:42
  Arthi Rabikrisson: So perhaps the most practical question to bring into the conversation is isn't really that, oh, am I a good person or a bad person for borrowing?
• 23:52
  Arthi Rabikrisson: That's not it.
• 23:53
  Arthi Rabikrisson: No.
• 23:53
  Arthi Rabikrisson: It's actually what am I agreeing to?
• 23:55
  Arthi Rabikrisson: And will it still work if my upcoming month isn't going to look perfect?
• 24:00
  Arthi Rabikrisson: That question can really travel with you long after this episode, everyone.
• 24:04
  Arthi Rabikrisson: If that sticks with you from today's episode, boy, oh boy, I think we've done a lot.
• 24:08
  Arthi Rabikrisson: then Malika.
• 24:09
  Malika Petersen: I mean, imagine a law student who studied while working and funded most of the education himself, right?
• 24:16
  Malika Petersen: Near the end of his L L B.
• 24:19
  Malika Petersen: He has 18,000 in the morning.
• 24:21
  Malika Petersen: He believed he passed.
• 24:23
  Malika Petersen: But the balance stood between him and knowing to support that he passed and graduating.
• 24:30
  Arthi Rabikrisson: And I mean 18,000 Rand, it's a large amount of money to find when you don't have it.
• 24:35
  Arthi Rabikrisson: At the same time, compare that with the years of study that have been invested.
• 24:39
  Arthi Rabikrisson: You know, that's the part that really makes me stop, Malika.
• 24:42
  Arthi Rabikrisson: The debt wasn't a new decision about whether or not to begin a degree, but now it's actually become the barrier at the finish line.
• 24:55
  Malika Petersen: Students cannot complete the qualification that they've been studying towards and using it, right?
• 25:02
  Malika Petersen: I mean, the benefit makes tend way beyond that student, as we know.
• 25:07
  Malika Petersen: Their families can get outfit, right?
• 25:09
  Malika Petersen: An employee can gain a qualified person, the economy may benefit, but yet the unpaid balance can leave the student carrying the immediate block of debt.
• 25:21
  Arthi Rabikrisson: Yeah, yeah, yeah, yeah.
• 25:22
  Arthi Rabikrisson: And again, we must be clear here, everyone.
• 25:24
  Arthi Rabikrisson: So a student's outstanding university fees are not the same thing as a commercial loan charging interest, okay?
• 25:31
  Arthi Rabikrisson: We're just using the story to look at what an unpaid obligation can prevent and at what changed when the relief arrived.
• 25:39
  Arthi Rabikrisson: So it doesn't prove that every education expense should be financed in the same way.
• 25:44
  Arthi Rabikrisson: We're not saying that, okay?
• 25:45
  Arthi Rabikrisson: Let's also venture into uncomfortable territory, Malika.
• 25:49
  Arthi Rabikrisson: Predatory lending.
• 25:50
  Arthi Rabikrisson: Okay, a term that sounds really dramatic until you realize how common it is.
• 25:56
  Malika Petersen: Yeah.
• 25:56
  Malika Petersen: So predatory lending, everyone, happens when financial products are designed to essentially profit from vulnerability, right?
• 26:05
  Malika Petersen: The lender understands the borrower has limited alternatives or auctions.
• 26:12
  Malika Petersen: The lender also understands that there's limited financial literacy.
• 26:16
  Malika Petersen: Or there's an immediate financial crazier.
• 26:20
  Malika Petersen: And what happens in that scenario?
• 26:22
  Malika Petersen: The lender prices the product accordingly.
• 26:28
  Arthi Rabikrisson: Let's make this real.
• 26:28
  Arthi Rabikrisson: Imagine your child needs medicine.
• 26:31
  Arthi Rabikrisson: Also, your rent is due tomorrow, and then a family emergency has arrived on top of that.
• 26:36
  Arthi Rabikrisson: So, as you can hear, number of things compounding.
• 26:39
  Arthi Rabikrisson: So you don't need the money next month, you need it today, right now.
• 26:42
  Arthi Rabikrisson: Okay.
• 26:43
  Malika Petersen: Yeah.
• 26:43
  Malika Petersen: I was sad believe that that urgently destroys your negotiation.
• 26:47
  Malika Petersen: The people are desperate.
• 26:49
  Malika Petersen: They don't ask about interest rates.
• 26:50
  Malika Petersen: They ask who can you just approve you?
• 26:53
  Arthi Rabikrisson: And that's a completely different mindset.
• 26:55
  Arthi Rabikrisson: Unfortunately, entire business models have actually been built around this reality.
• 27:00
  Malika Petersen: Yeah, the paradox is actually fascinating.
• 27:03
  Malika Petersen: The people with the least money often pay the highest cost for borrowing it.
• 27:09
  Malika Petersen: And I mean, on the contrary, people with substantial asset can easily access cheaper credit.
• 27:17
  Arthi Rabikrisson: I mean, I think that's even worth repeating, Malika.
• 27:19
  Arthi Rabikrisson: The poorest often pay the highest price for debt, the wealthiest often pay the lowest.
• 27:26
  Malika Petersen: Yeah.
• 27:26
  Malika Petersen: Because debt's really existing isolation.
• 27:29
  Malika Petersen: It's connected to housing, it's connected to education.
• 27:32
  Malika Petersen: Healthcare comes along with that.
• 27:34
  Malika Petersen: Employment, transport, historical inequalities, family obligations.
• 27:39
  Malika Petersen: So yeah, it's tough.
• 27:41
  Arthi Rabikrisson: It's true.
• 27:42
  Arthi Rabikrisson: You know, um, and think about two households.
• 27:45
  Arthi Rabikrisson: You know, household A receives an inheritance, household B receives no inheritance and supports extended family members, right?
• 27:53
  Arthi Rabikrisson: Monthly income might be similar, but the financial reality of what's actually playing out is very different.
• 28:00
  Malika Petersen: Absolutely.
• 28:01
  Malika Petersen: I mean, I think this is so important.
• 28:03
  Malika Petersen: Everybody's reality is different.
• 28:06
  Malika Petersen: In the scenario you just mentioned one family might be able to invest, the other family may be permanently responding to emergencies.
• 28:15
  Malika Petersen: And when unfortunately, when emergencies happen on such a regular basis, death becomes permanent.
• 28:22
  Malika Petersen: It becomes a permanent thing.
• 28:25
  Arthi Rabikrisson: And that doesn't mean people are powerless, no.
• 28:28
  Arthi Rabikrisson: But but it does mean we need to stop simplifying complex problems.
• 28:33
  Malika Petersen: Yeah.
• 28:34
  Malika Petersen: Let's move into Ask the Swan.
• 28:36
  Malika Petersen: So today's question is I've been paying for ages.
• 28:41
  Malika Petersen: Why does it feel as though I'm getting nowhere?
• 28:44
  Malika Petersen: Nothing like the, you know, a lot of people assume that the answer must be, well, we should have read the paperwork.
• 28:51
  Malika Petersen: Sometimes the paperwork itself is.
• 28:55
  Arthi Rabikrisson: Yeah, I'm sure it does, right?
• 28:57
  Arthi Rabikrisson: So the former credit ombud actually published an anonymized case involving an account subject to like a salary attachment order.
• 29:06
  Arthi Rabikrisson: So basically, the consumer then challenged the interest that was being charged.
• 29:10
  Arthi Rabikrisson: And after investigating, the Ombud found that the interest breached a provision of the National Credit Act.
• 29:17
  Arthi Rabikrisson: So the account is actually adjusted and the charges were reversed.
• 29:21
  Malika Petersen: Now, everybody, we are not saying, you know, with a salary reduction, you know, get money back.
• 29:28
  Malika Petersen: But it shows that asking for an explanation is an absolutely reasonable thing to do, right?
• 29:38
  Malika Petersen: And a statement is a record made by an institution.
• 29:44
  Malika Petersen: It shouldn't be beyond questioning.
• 29:48
  Arthi Rabikrisson: If a balance seems wrong, start with the provider.
• 29:51
  Arthi Rabikrisson: Ask for an up-to-date statement.
• 29:53
  Arthi Rabikrisson: Get a clear breakdown of the original amount, payments received, interest, all the other charges, right?
• 30:00
  Arthi Rabikrisson: Keep your copies of your agreements, keep your pay slips, especially if there's deductions that come off that, as well as any correspondence you may be having with the different institutions around this.
• 30:12
  Arthi Rabikrisson: Ask even specific questions in writing.
• 30:15
  Arthi Rabikrisson: So there is a record of a response.
• 30:17
  Arthi Rabikrisson: Okay.
• 30:18
  Arthi Rabikrisson: And if the answer doesn't resolve it?
• 30:21
  Arthi Rabikrisson: So, you know, that's when the national financial ombud, who actually now handles eligible banking and credit complaints, and it's at no cost, by the way, to the consumer, everybody, you know, they will actually come get involved after the complaint has been first raised with that provider.
• 30:37
  Arthi Rabikrisson: So, you know, there may be many routes depending on the issue, but I think the point for today, everyone, is that you can ask for the figures and you can actually go through a formal complaint route if these are not adding up.
• 30:49
  Arthi Rabikrisson: So don't let any embarrassment make the question for you that you can't actually go about asking those questions of others.
• 30:57
  Malika Petersen: Yeah, I absolutely love that because I want to understand this amount is a complete sentence.
• 31:02
  Malika Petersen: You know, you don't have to arrive at, you know, or justify why you want to understand for something.
• 31:10
  Malika Petersen: Yeah.
• 31:10
  Malika Petersen: Now, I want to come back to that word benefit just for a second.
• 31:15
  Malika Petersen: Yeah.
• 31:15
  Malika Petersen: Sometimes a debt helps a person acquire something that lasts longer than the repayment, right?
• 31:23
  Malika Petersen: And sometimes it buys a short window release at a price that keeps coming back.
• 31:30
  Malika Petersen: Now, as we said, the debt itself may be valid, but a charge or deduction needs corrected.
• 31:38
  Malika Petersen: We won't see those differences if our only measure is whether somebody has debt at all.
• 31:46
  Arthi Rabikrisson: I mean, if you're looking back at like our example with Nandi, right?
• 31:49
  Arthi Rabikrisson: Her experience, review of deductions actually changed what was available for her household.
• 31:54
  Arthi Rabikrisson: If we go back to our student fees example, right?
• 31:57
  Arthi Rabikrisson: Relief on an outstanding balance will actually change access to a qualification he had already worked for.
• 32:04
  Arthi Rabikrisson: And this one that we've just mentioned around the Ombud case, you know, that actually reminds us that an incorrect charge can be challenged.
• 32:12
  Arthi Rabikrisson: So these aren't three versions of one solution, everyone.
• 32:15
  Arthi Rabikrisson: There are actually three reasons to look at the specific mechanism that might be keeping us stuck.
• 32:22
  Malika Petersen: Yeah.
• 32:22
  Malika Petersen: And for listeners, right?
• 32:24
  Malika Petersen: The mechanism might be high total costs, or it might be a repayment that no longer fits your income, right?
• 32:33
  Malika Petersen: A fee that you cannot expense, or simply not knowing when this agreement ends.
• 32:38
  Malika Petersen: Finding the exact issue doesn't really worry, but it does give you more useful questions or thoughts than what's wrong with them.
• 32:48
  Arthi Rabikrisson: And you know, for those who are listening in who actually have the power to design products, okay, employ people, even set policies, I think the question is bigger.
• 32:58
  Arthi Rabikrisson: Questions that come to mind.
• 33:00
  Arthi Rabikrisson: Are we making it easier to understand the commitment that somebody is taking when they sign on that dotted line?
• 33:06
  Arthi Rabikrisson: Are we responding when a payment problem first appears with that person?
• 33:11
  Arthi Rabikrisson: Are we correcting errors, you know, without having to make a person fight for months to be heard around this?
• 33:18
  Arthi Rabikrisson: Um, you know, that for me, Malika, is what fairness looks like in daily, daily practice.
• 33:22
  Arthi Rabikrisson: You know, it's not just a speech or lip service, it's actually being done.
• 33:26
  Arthi Rabikrisson: And I think, you know, for our listeners, you know, here's a here's a little call to action for you.
• 33:32
  Arthi Rabikrisson: Okay.
• 33:32
  Arthi Rabikrisson: Take just one agreement or one statement of yours.
• 33:36
  Arthi Rabikrisson: Okay.
• 33:36
  Arthi Rabikrisson: Not every debt you've ever had may have it, but hopefully at least pick one that does.
• 33:43
  Arthi Rabikrisson: Okay.
• 33:43
  Arthi Rabikrisson: Then just give yourself 15 quiet minutes.
• 33:47
  Arthi Rabikrisson: That's all.
• 33:48
  Arthi Rabikrisson: And actually make what we're gonna call a borrowing receipt, right?
• 33:51
  Arthi Rabikrisson: So basically, you write this in a notebook or on your phone, but you're gonna keep track.
• 33:56
  Arthi Rabikrisson: And Malika's gonna share what this looks like.
• 33:59
  Malika Petersen: Yeah.
• 33:59
  Malika Petersen: So so we ask you to write five lines, right?
• 34:03
  Malika Petersen: First, what did I receive?
• 34:06
  Malika Petersen: And what did it help me do?
• 34:08
  Malika Petersen: Very important thing.
• 34:10
  Malika Petersen: Okay.
• 34:10
  Malika Petersen: Second, what is the total amount I will pay for follow this agreement as planned or as agreed?
• 34:16
  Malika Petersen: Thirdly, what leaves my account each month and when should the debt end?
• 34:23
  Malika Petersen: Right.
• 34:24
  Malika Petersen: Of course, what happens if I miss a payment?
• 34:26
  Malika Petersen: Very important question.
• 34:28
  Malika Petersen: And for who do I contact if I need an explanation or if something just gets wrong to me?
• 34:35
  Arthi Rabikrisson: Yeah, I love that.
• 34:36
  Arthi Rabikrisson: Five steps, five lines, five questions.
• 34:39
  Arthi Rabikrisson: And actually, if you're not having answers to them, it's a good time to actually start thinking about how you get those answers.
• 34:45
  Arthi Rabikrisson: Okay.
• 34:45
  Arthi Rabikrisson: And for everyone, if you are considering new credit, okay, ask for the pre-agreement statement and quotation and take your time, right?
• 34:53
  Arthi Rabikrisson: Take your time, study it.
• 34:55
  Arthi Rabikrisson: Look at the total repayable amount, not just the monthly instalment, okay?
• 34:59
  Arthi Rabikrisson: If you already have the debt, you know, use your agreement, use your recent statements to try and figure out the impact.
• 35:06
  Arthi Rabikrisson: If you can't find a figure, then that actually becomes the first question that you go back to the provider with.
• 35:11
  Arthi Rabikrisson: So the exercise isn't actually a verdict on the decision you make.
• 35:15
  Arthi Rabikrisson: You know, please don't think that.
• 35:17
  Arthi Rabikrisson: It's actually just about finding that clearer picture of the decision that you're now living with at this point in time and having to manage.
• 35:24
  Malika Petersen: And if at that point the figure makes you uncomfortable, just take a break, right?
• 35:29
  Malika Petersen: You don't have to solve everything immediately.
• 35:34
  Malika Petersen: But understand that it is the first useful step.
• 35:37
  Malika Petersen: Then you can decide whether the next step is a conversation with the lender, whether you have a query about a charge, or if you want to get advice from a properly qualified person about your own situation.
• 35:51
  Arthi Rabikrisson: Well, I think we've covered quite a bit in terms of all of the different examples.
• 35:55
  Arthi Rabikrisson: I'm sure it's landing for a lot of our listeners, Malika.
• 35:58
  Arthi Rabikrisson: Um, as well as I love our borrowing receipt example.
• 36:02
  Arthi Rabikrisson: So I really want to encourage our listeners to get going on that.
• 36:05
  Arthi Rabikrisson: Okay.
• 36:06
  Arthi Rabikrisson: And with that, we are actually at our parting shots, Malika.
• 36:09
  Arthi Rabikrisson: What is your parting shot, per se?
• 36:11
  Malika Petersen: So I think my parting shot, African, is that access to credit is only half the story.
• 36:17
  Malika Petersen: We really have to ask, you know, what does credit cost us, right?
• 36:24
  Malika Petersen: And whether the person who gets the money has enough thing to repay it, even when normal life just happens.
• 36:33
  Arthi Rabikrisson: I think that is great.
• 36:34
  Arthi Rabikrisson: And I think my parting shot for today, everyone, will be that debt is an agreement between people and institution, but we often talk as if the person who owes has no right to ask any questions.
• 36:47
  Arthi Rabikrisson: So you can take responsibility for a debt and still ask, how was it calculated?
• 36:53
  Arthi Rabikrisson: Were the terms clear?
• 36:55
  Arthi Rabikrisson: And actually, what help is available to me?
• 36:57
  Arthi Rabikrisson: These are all reasonable and responsible questions.
• 37:02
  Malika Petersen: So listen, if it's all brought you a particular statement or agreement, you know, that came to mind, that's the place to start.
• 37:12
  Malika Petersen: And if someone, you know, is blaming themselves and not understanding the numbers, perhaps send in this conversation.
• 37:19
  Arthi Rabikrisson: Keep listening, everyone, reflecting and taking action.
• 37:23
  Arthi Rabikrisson: You know, those Christmas presents shouldn't put you into debt this early on.
• 37:28
  Arthi Rabikrisson: Until next time, keep creating your legacy one decision at a time.
• 37:33
  Arthi Rabikrisson: Ciao for now.
• 37:34
  Arthi Rabikrisson: Ciao.
• 37:35
  Arthi Rabikrisson: Thanks for joining us.
• 37:39
  Malika Petersen: We hope you found these ideas and guidance useful.
• 37:43
  Arthi Rabikrisson: We're both seasoned in the investments industry.
• 37:46
  Arthi Rabikrisson: Malika is at the coal face of how, where, and why people invest the way they do.
• 37:53
  Arthi Rabikrisson: I certainly am.
• 37:54
  Arthi Rabikrisson: And you, Arthi, you've witnessed different types of investment behaviors around money too.
• 38:00
  Arthi Rabikrisson: And now working the global award-winning coach to free us from the mindsets that stop us from becoming financially free.
• 38:09
  Arthi Rabikrisson: Do subscribe, share, and write a review or send us comments.
• 38:13
  Arthi Rabikrisson: We would love to hear from you.
• 38:15
  Arthi Rabikrisson: Catch you on the next episode of the Swan Effect Podcast.
• 38:19
  Arthi Rabikrisson: Bye for now.
• 38:20
  Arthi Rabikrisson: Ciao!