By Waldo Adams
When large infrastructure development projects get the go-ahead, they bring much needed jobs and income to local communities. However, with little or no financial smarts, workers incur more debt than they can service and the resulting bad credit listing impacts their future opportunities. There’s a way to turn this around. With financial awareness training, workers can use their earning to create a better future for themselves instead.
Infrastructure development is being placed at the heart of the government’s plan to boost the economy but if people who gain employment want to truly benefit, they need to wise up about money, debt and the legal system.
Everyone in this value chain, from the government, which sets policies around lending, to contractors providing employment and the retailers (clothing, furniture, cell phones) that grant credit irresponsibly, should rethink their policies to help people in South Africa achieve better outcomes.
Everyone is responsible
Indebtedness is a growing problem in South Africa and the companies providing credit are complicit if they grant credit without proper checks on periods of employment. This is a critical point as infrastructure development projects may employ a number of people, but only a few months at a time in many instances.
A case in point is the recent sign-off on the construction of 27 renewable energy Independent Power Producer (IPP) projects worth R56 billion (US$4.2 billion).
These projects will go into construction in some of the poorest rural areas, employing up to 400 people at the height of construction phases. However, most people will only be employed on a contractual basis for a single phase of the construction, which may be as short as three or four months.
The longest anyone is likely to be employed is 18 months to 2.5 years, yet we find that many will sign hire-purchase agreements for periods of up to five years. When they cannot service that debt, creditors may repossess the goods and credit records are blemished.
When working on the ground with these communities, we can see the impact lack of financial awareness has on the cycle of poverty. A bad credit record will affect future opportunities for employment and limit the kinds of jobs people may qualify for. It also places more pressure on already impoverished communities, extending the cycle of poverty and driving people to alcohol, violence and hopelessness. To address this, people in these communities only need to understand a few simple money concepts.
Economic circumstances often influence how people relate to money. If the person has only ever received a social grant, which is primarily spend on basic commodities like food, it’s hard to understand how to budget, save and invest. It’s also difficult to grasp the concepts of entrepreneurship and how to create and augment your income by using money differently.
Some of the key concepts new employees should understand and try to take into consideration include:
- The value of money. Money is earned and you can only spend what you earn. Money saved or invested can offer you a future opportunity, or help you generate more money. Understanding the limits of your money will help you budget and plan.
- How to create a budget. Don’t spend everything at once. Make a list of essentials and stretch your money to provide future security.
- Need versus “nice-to-have”. Buy only what you need. For example, a cell phone is important for communication, but it doesn’t need to be an expensive one.
- Invest in your future. Spend your money wisely in ways that will help you benefit into the future. For example, you can:
- Put money aside to buy equipment to run a small business.
- Use some of the money you earn to do a training course that will give you the skills to get other employment.
- Buy chickens, goats, sheep, seeds, farming equipment or fertilizer to help improve your family’s immediate lifestyle.
Understanding money is important. It will help people keep their money safe and use it wisely to support their needs and secure their future. For infrastructure companies, investing in growing the financial awareness of their employees can make a huge difference. It’s easy to do.
Waldo Adams, Executive Director is Projects at Economic Development Solutions