When Finance Minister Tito Mboweni delivers the 2021 budget, he will do so fully cognizant that South Africans of all walks of life are being stretched – some beyond breaking point – as businesses take strain and some succumb to the devastating effects of the COVID-19 pandemic.
The unemployment figure is alarming and unsustainable, and unless Mboweni and his team manage to implement meaningful stimulus to the formal economy, it is at risk of rising further. Sadly, millions in formal employment are not faring much better. PwC’s Financial Wellness Survey found that 89% of employees in the country were worried about paying off their loans and bills as of August last year.
It would be a brave pundit to presume that figure would be lower in February 2021, just weeks after the traditionally burdensome “Janu-worry” where many South Africans who over-extended during the festive period scrape together pennies and, sadly, resort to exploitative unsecured payday loans or other high-interest debt-traps.
Many South Africans have a toxic relationship with money. The same PwC report found that 80% of employees cannot make it to payday without resorting to taking on unsecured debt. If you are a CEO, do this: imagine walking through your entire workforce – from the factory floor, up into the offices, perhaps greet a few people in the canteen, and then realise that only two out of every 10 people you saw will make ends meet by waiting for their pay.
That’s a problem. It is stark and it is apparent. So, how does a company change this and how can it provide meaningful financial literacy programmes for its employees – that they pay attention to instead of being distracted by their financial woes?
Technology disrupts the status quo. Uber changed taxis and AirBnB changed hotels. Earned wage access (EWA) is changing the way employees are paid. EWA is a novel subscription solution which empowers employees by giving them access to a portion of their earned wages, whenever they need it. It is not a loan – it is simply giving people access to what they have already earned, and it is priced that way, with no transaction fees or interest charges. This concept will mark the beginning of the end for payday lenders and mashonisas, the very heart of South Africa’s payday poverty cycle.
Far from being a starry-eyed ideal, EWA has gained impressive traction in developed markets because it speaks to a fundamental right. If an employee has worked for 16 days – why should she have to wait a further 14 days to be paid for the labour she has already completed? Because it is convenient for payroll? Because the internal systems cannot handle hundreds of salary advances? Or, because as an employer you like to have them where you want them?
In our interactions with businesses across sectors such as manufacturing, retail, mining and others, we know that the answer to that question is an overwhelming “no”, which begs the question: “If most employers really do want what’s best for their employees, why do they stand back and allow them to be lured into perpetual debt traps?” EWA is a compelling way to end this cycle.
The point of technology, if used ethically, is to make life easier, and this is why at SmartWage we remove the administrative burden for employers, so they can do something practical to stop the payday poverty cycle in their workforce and protect their employees from unsecured lenders.
We believe that technology also provides a compelling medium through which to dispense meaningful financial education – especially if it is accessible by everyone, even those that don’t have high-end smartphones. There’s little point in making wages available if employees are not taught how to change their behaviour for the better.
Earned wage access is one-way businesses can make a meaningful difference in the lives of their employees. Let’s go back to the CEO walking through the business – now imagine most of those you greeted were giving their all to their jobs and not distracted by fears of not making ends meet or performing poorly because of anxiety caused by endless debt-collection phone calls or pressure from informal lenders. Instead, they are navigating their lives with money that’s rightfully theirs – that’s what technology can do.