Mangosuthu Buthelezi's Weekly Newsletter to the Nation

"The Devil Wears Prada" was one of last year's most successful films, deliciously capturing the youth of today's struggle against consumerism and wholesome - if somewhat old-fashioned - traditional values.

At the risk of sounding like a killjoy, I am concerned about the rampant consumerism which seems to have gripped our society from the ruling elite downwards. I see it in my party and community too with people, especially our youth, overextending themselves with expensive cars and ostentatious lifestyles.

Thanks to the explosion of credit cards, many people, including those in the lower income brackets, can now purchase luxury items such as, well, Prada shoes and i-pods. Instant gratification is the name of the game.

On one level, a bad example is set at the top and filters down through our social hierarchy. The ANC government has effectively added the word "overspending" into our daily vocabulary with the growing number of government departments and institutions, both national and provincial, routinely overspending their annual budgets, sometimes by astronomic amounts - like the KwaZulu-Natal Department of Agriculture and Environmental Affairs.

With such role models at hand, our personal credit cards are fuelling a consumer society out of control. We are encouraged to pay on credit, even if we cannot afford the consumer product that we do not really need, but that slick advertising convinces us we must have.

When one walks into any of our high street banks, one is bombarded with soft focus images on flat screens of attractive people buying a stylish new item of clothing or booking that luxury holiday thanks to the bank's natty slim credit card which glides effortlessly through the cash till.

And spend, spend, spend is what we South Africans have been doing recently. Consumer confidence is reflected in a buoyant economy driven by a three-year consumer spending boom. This has led to a sharp uptake in imports and a current account deficit contributing to the inflationary pressures that have spurred higher interest rates. Yet South Africa's fourth quarter growth rose to over five percent. This is obviously good news.

But whilst consumer demand is likely to remain robust with manufacturing, construction, finance and retail and wholesale trade propelling growth, I must strike a cautionary note about household debt.

Let us look west for a moment. The USA, the world's largest economy, is, according to many commentators, heading for a recession. The redoubtable financial magician, Alan Greenspan, has warned that there is a thirty percent chance of the US economy going into recession. Others think there is a much higher probability.

Whilst the heady consumerism in America can be attributed to several factors, the most important one has been that consumers have been spending more money than they have been earning for a long time. With falling house prices (what goes up usually comes down), there is little left for American consumers to spend. This is why the US savings rate is negative and there is no money for that 'rainy day' which I wrote about a few weeks back.

Needless to say, if the US economy slips into recession, this will have a negative domino effect on the global economy since its output accounts for thirty percent of worldwide economic activity.

Similarly and worryingly, like America, South Africa has one of the lowest saving rates in the world and high household debt.

According to the latest Reserve Bank Quarterly Bulletin, household debt in proportion to disposable income is more than seventy percent. This is the highest level ever recorded. Household savings as a percentage of disposable income are effectively zero - also the lowest level ever recorded in South Africa.

I therefore welcome the introduction of the National Credit Act (NCA), aimed at regulating a responsible credit industry, which will come into effect in June. I still, however, caution South Africans, as the Finance Minister did in the latest Budget, to use their tax cuts to reduce household debt and save for the future.

I plead with all South Africans to stop borrowing and consider the fact that credit card companies and banks can only make profits running into billions if we go into debt. Seen in this light, the devil's proverbial Prada shoes (I, personally, have nothing against Prada), might not look so enticing. I do believe that if we collectively act now, we can avoid a credit hangover later.

On the other side of the coin is the plight of the poor majority. Most South Africans are not participants in the present economic bonanza. Nationwide, fewer than half of South Africans have access to a bank.

Traditional banks are often located far from poor South Africans, or require documentation to open an account, such as proof of income and address, which many people lack. Bank fees in South Africa, as I have so often lamented, are also some of the highest in the world. Banks should be using some of their huge profits to slash banking fees for the poorest. Alongside the introduction of the NCA, I would like to see
legislation to curb excessive bank fees.

Without access to a bank account, many poor South Africans are stuck in the informal cash economy. They cannot save safely or borrow efficiently, except at very high interest rates from micro-lenders, the infamous loan sharks whose makeshift branches have mushroomed even where conventional banks do not dare tread.

I have always contended that easier access to banking will encourage people to save more, and to put their savings - often kept in cardboard boxes under their beds or invested in informal groups known as "stokvels" - to better use.

In order to spend better, we must also rethink the concept of credit and get back to some first principles. Instead of borrowing to finance consumption, we all must learn to borrow to finance money-generating enterprises - within our own limits. This is not only about setting up a business. Other available options are investments into savings and pension schemes.

Most financial advisers will tell you to start saving by putting aside one tenth of your monthly salary, starting with your first pay check. I can only agree and add that it is never too late to start with your next salary, be consistent, set a good example to your children in the process and, in the end, enjoy the savings when they come in handy.

Yours sincerely,

Mangosuthu Buthelezi