A lot of middle class families all over the world will be able to relate to this. The article is written from a South African perspective. I do believe that the scenario is not very different in any other country anywhere in the world.
I recently read an article entitled falling down the ladder. It is about a middle class American family in a middle class neighborhood in Pittsburgh, Pennsylvania. This family climbed the economic ladder and due to it being the economic ladder they were victims of changes in the economy.
This is a quote from that article :
I recently read an article entitled falling down the ladder. It is about a middle class American family in a middle class neighborhood in Pittsburgh, Pennsylvania. This family climbed the economic ladder and due to it being the economic ladder they were victims of changes in the economy.
This is a quote from that article :
"Their home, with its kitchen gadgets, flat-screen TV, newer computer and other trappings of a middle-class life, is only a couple of miles away from where she was raised, in nearby Wilkinsburg. But it’s a world away from the dilapidated neighborhood where she remembers her mother struggling to make ends meet on a string of minimum wage jobs.“I didn't want to live there. I didn't want to live like that. It’s hard. It’s hard to be poor,” she said.
That’s one reason she became the first person in her family to go to college. It was among a series of steps she and her husband, Rich, took to try to ensure a financially stable, middle-class life for their own daughters, who are now 5 and 8.
But after five difficult years, Rich, 40, and Mary, 41, are grappling with a fearful situation that many Americans have faced since the nation went into recession in late 2007: The prospect of falling back down the economic ladder.
A string of layoffs has left the Contis preparing for the possibility of living on around $27,000 a year, down from about $75,000 they were earning before Rich was laid off for the second time in five years. "
Why did I named the post "Why can I not get up again"? I also gave you the answer: The problem lies in the Maths ! For the simple reason that probably 99% of people in a similar scenario has this in common : They live on credit. And the Credit providers have no answer but to say to them " We are not interested in your problem - shut up and PAY UP !"
No matter what your currency is trying to keep up with your commitments of 100% before the crunch with only 40% of the income from that period is just no possible. The maths do not work out.
In South Africa we had a barrage of new laws and systems introduced lately that are looking to help address the problems. The problem is that the financiers use all sorts of crafty tricks to keep their clients in the dark. A good description of this phenomenon could be called "LETS KEEP THEM IN THE DARK AND FEED THEM HORSE MANURE" This by the way is how you grow mushrooms.
I am going to discuss a few of these laws and systems and how it could help you.
1. NCA ( National credit act) The rights of everyone involved in credit is spelled out very clearly in this law. A credit provider has to be able to demonstrate that he has applied the letter of this law by determining your ability to pay beyond any reason of a doubt. If he does not do this the "loan" given to you could be classified as reckless lending and he could be required to write the debt off and he will never be able to recoup his losses. Unfortunately this is the law, but their is no easy way for any debtor to apply it apart from utilizing the services of a knowledgeable lawyer who wants to be paid up front for his services.
2. The consumer affairs act. A proper study of this act can save a consumer a lot of money when it comes to what his rights are - I am not going to discuss this in any detail - Get hold of the act and read it with a highlighter !
3. Debt review and debt counseling. This sounds like a life savor when in effect it is most cases not. It is not available to entrepreneurs and business owners. Should you default on the payments as agreed upon the system bombs out and you are left further back than ever. When this happens the creditors really go for you. Creditors do not like this system and they will do everything in their power to sink it !
4. Council for debt collectors. The law requires that all debt collectors be properly registered with this council including the actual person that phones a debtor. The council have a code of conduct that has to be adhered to. Most agents phoning is not registered although the company might be. This is illegal. Most debt collectors also do not adhere to the code of conduct as far as harassment is concerned.
Here are the reasons why I content it is difficult or near impossible to get up once one has fallen down financially:
First let's look at the main reasons for financial failure:
1. Lack of discipline by the individuals. It does not make provision for a possible layoff.
2. Lack of skills to be re-hired when someone loses his job.
3. Downsizing and other economic reasons for layoffs
4. Small businesses closing down for various reasons - mainly a change in the economy and a decline for their products.
Financiers have based their decision for finance on a persons' financial ability linked to his work profile.
Should that persons' financial position change due to circumstances out of his control the commitments to pay does not change. The affected person has to change his priorities and unfortunately the first priority would and should always be survival of himself and his family and there after repayments of debt. The irony is that the same persons doing the collecting might be in exactly the same position but due to the corporate policy has to do his job.
Now the maths do not work out.
Look at this example : Take home pay R 50 000 before job loss. Monthly living expenses rent,telephone food etc R 20 000. Debt repayment R 15 000 car furniture, credit cards, loans etc.) Savings for holidays, entertainment R5000 per month . Insurance R3000 Savings R 7000
First 3 months of layoff this person would be living on his savings which (hopefully) could be around R100 000. Already there is a R50 000 shortfall after 3 months - Already that person would probably not be paying all of his debts and not be saving anymore Without the holidays and entertainment and after insurance he could only budget to pay around R10 000 on his debt.
Now he gets a new job. it only pays R 30 000 per month - Living expenses is a fixed amount - say |R18000 ( after cutting back a bit) Insurance is still R 3000. No entertainment or saving for holdays or saving at all - leaves R 9000 per month for debt payment.
What did I say ? THE MATHS DO NOT WORK OUT.
Most banks and other financiers immediately hike their interest rate on defaulters adding to the misery.
I will be posting some ideas on how to handle this situation in a follow up post shortly
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