Young professionals entering the job market are embarking on an exciting and important journey. Earning money for the first time and learning how to use credit wisely provides valuable lessons to set them up for life.
Financial responsibility can be one of the hardest, but most rewarding, things to accomplish. Educating yourself from an early age on how to manage money correctly can set you on the right path to ensuring that you can provide properly for yourself, and – one day, possibly – a family of your own.
However, starting out on a career tends to overshadow those aspects of which you should be aware from the get‐go, such as how quickly debt can be accumulated on newly earned credit cards, or the interest you could end up paying on an item purchased on hire purchase. The latter could even end up costing you more than the initial value of the item itself.
“Perhaps the most important advice any young professional starting out can be given, is to live within your means from your very first paycheck,” advises Jonathan Hurvitz, Chief Financial Officer of Teljoy.
As an online retailer that specialises in the supply of electronics (such as laptops, TVs and cellphones), home appliances of all nature and even furniture on a rental or rent‐to‐own model, Teljoy’s own contracts operate entirely different from hire‐purchase or credit card agreements. They run instead on a month‐to‐month basis, which means that customers can upgrade, downgrade or cancel their contracts entirely at any point in time, depending on their financial situation.
“Many people, at the start of their working career, dream about owning the biggest and best of everything,” says Hurvitz: “and they can easily be lured into hire‐purchase agreements, or putting everything onto a new credit card.”
“One of the biggest traps they fall into is that, before they know it, the interest alone on these credit facilities can add up to payments that absorb the lion’s share of their monthly income. And they can end up creating debt upon debt, just to service debt. What we advise is first start with the basics of what you need; the upgrades and other luxuries can come later when that paycheck expands.”
Learning how to budget is also central to developing financial responsibility, notes Hurvitz, and is an excellent way of tracking – and being aware of – not only your monthly expenses and what you need to survive, but the consequences of the debt you may be carrying and its long term implications.
This can result in the hardest lesson to be learnt when debt escalates, and you then fall behind on monthly payments, as this will affect something extremely important that could follow you around for years, if not for life: a bad credit score with one of the official credit bureaus that constantly monitor the credit habits of South Africans.
Explains Hurvitz: “Today, when any consumer applies for credit from a lender, that lender will first check with a credit bureau to find out what that consumer’s credit history looks like, and whether his or rating is good or bad. The bureau will be able to pull a full report containing everything from personal information as to how that applicant has managed every account they have – from loans and store accounts to credit cards, hire purchase agreements and home loans.
“Every payment you’ve missed on an account, is recorded, just as whether or not you are on time in paying your monthly debts. So, the better you are at paying your accounts in full and on time every month, the better your credit history and credit report will be, and you will be considered a good financial risk. The lower the score, the more chance a lender will turn down an application for credit.”
A poor credit record is even something that prospective employers will look into these days, performing financial checks on people before they hire them.
Teljoy itself will only enter into monthly rental or rent‐to‐own or agreements with customers who demonstrate good credit records and therefore good spending habits. “We do this first and foremost to protect the customer from accumulating a monthly expense they actually can’t afford, and which may eventually cost them their credit history,” says Hurvitz.
Another essential skill to learn early on in life is good old‐fashioned will power, and not to be tempted into buying something just because your friends have bought it.
“Trying to keep up with fashion and trends often blinds us to spending well beyond our means,” says Hurvitz. “Chances are, your friends probably bought whatever it is they have on credit themselves, and may end up eventually falling into those exact same, and highly damaging, debt traps with a bad credit record that will follow them around wherever they go.”