Lack of financial literacy can cost you money

March 6th, 2007 Posted in Financial Literacy, General Finance

Financial knowledgeOne of Robert Kiyosaki’s messages in his “Rich Dad, Poor Dad” book is financial literacy is the key to your financial success.

Not having the adequate financial knowledge not only hinder you from reaching your financial goal, it can also cost you!

In South Africa, crooked debt collectors and attorneys are pulling in close to R1-billion a year by overcharging often financially illiterate borrowers, as reported by Mail & Guardian, an African newspaper.

Clark Gardner of Summit Financial Partners said that of the 200 000 emolument attachment orders — garnishee orders — his company had audited, borrowers had been overcharged an average of R500 each in debt collection fees and interest.

Given the 1,7-million attachment orders in force in South Africa, Gardner estimated that debt collectors and lenders are earning about R850-million a year in illegal fees.

In some cases, incorrect interest calculations have seen attorneys overcharge by R25 000 on an R8 000 loan.

Overcharging sometimes leaves borrowers trapped in debt their whole lives. At one large company known to the Mail & Guardian, 3 100 workers are toiling under 9 500 emolument attachment orders.

Attachment orders are issued by the courts to enable debt collectors to appropriate some of the borrower’s salary to repay debt. Employers who refuse to collect these debts from payroll face a warrant of execution, allowing the collector to attach the company’s assets.

Most borrowers are low earners who lack financial literacy and the means to challenge abuse. Of the three million employed people who live with a negative cash flow, at least a million borrow money for subsistence and many have fallen victim to corruption in the attachment orders system.

Allister Long, MD of Powerlife, which runs financial literacy courses, said orders were far too easily obtained. Long provides consultancy services to large companies where half the workforce is burdened by orders. Some workers took home as little as R4 after debt collectors had plundered their salaries.

Rudolph Willemse, consultant to the National Credit Regulator, agreed that the attachment order system was highly corrupt. “The system is being abused. From the beginning the lender relies on it as a collection mechanism, using the courts as a standard form of collection.”

In addition, debt collectors and attorneys’ interest-fee calculations are often not checked. As collectors charge a percentage of the instalment as an administration fee, it is in their interests to overstate the total repayment.

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