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Botswana: Financial Literacy Key to Servicing Loans and Mortgages

How can financial literacy help assist in servicing loans and mortgage premiums especially during crisis such as the COVID-19 pandemic?

In an interview with BOPA, a First National Bank Botswana economist Mr Moatlhodi Sebabole said financial literacy would enable people to appreciate and properly apply financial management skills.

Being financially literate, he said, included effective financial planning, properly managing debt, accurately calculating interest, and understanding the time value of money.

Noting concerns for indebtedness in Botswana, especially for households, Mr Sebabole attributed it to rising debt service costs where there was no increase in revenue and disposable income levels.

He explained that among the different ways individuals went into debt were banks, formal micro-lenders, SACCOS for different institutions, metshelo (traditional investment schemes) and hire purchasing.

He said while debt came at a cost due to borrowed funds and interest repayment over a calculated term, it also resulted in a mismatch since repayment accrued interests, which could be either stipulated bank rates or prime lending rate.

“The working class is said to experience financial turmoil wholly because the majority of their earnings goes towards servicing sourced loans yet income levels are not catching on,” said Mr Sebabole.

As a rule of thumb, Mr Sebabole said, 20 per cent of one’s income should go towards saving.

The practice had great potential to assist in servicing loans and mortgage premiums especially during crisis such as the COVID-19 pandemic where revenue streams had been affected, he said.

Financial education, behavior and accountability were key components in addressing household debt, he added.

He said as a trade unionist, employee welfare was a priority.

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