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Financial literacy key to debt-free living

Look after yourself first, says financial planner Jaco Prinsloo.

NOMPU SIZIBA: As individuals we need to do our best to determine our own financial destiny. How do you do that? Well, you ensure that you are empowered to ask the right questions around financial products – be it insurance, bank loans, investments and securing your financial future. You don’t need to be a rocket scientist to do this, but you need to read literature or watch educational programmes. Of course, you can also approach a financial advisor, and in many cases you don’t have to pay directly for that service.

Well, to give us his view on the dangers of keeping oneself in financial darkness, and how best to ensure that we see the light, I’m joined on the line by Jaco Prinsloo – he’s a certified financial planner at Alexander Forbes Financial Planning Consultants.

Thanks very much, Jaco, for joining us on the show this evening. Financial illiteracy is something we still grapple with in South Africa by not having the ability to differentiate issues on financial matters. What are some of the financial risks that people face in their daily economic lives?

JACO PRINSLOO: The biggest problem with being financial illiterate is making poor financial decisions. There is the risk of falling into debt, the risk of changing your investment strategies based on short-term performance – like we’ve been experiencing over the last few years – and then also selecting the wrong financial products based on your needs. If you are not financially literate, you’ll be working for a salary for the rest of your life, most likely in debt. You will struggle to get ahead.

If you empower yourself, and educate yourself to become more financially literate, you actually give yourself the opportunity to become successful.

NOMPU SIZIBA: So, where can people go in order to financially empower themselves? This is in terms of whether it’s do-it-yourself learning, or of course getting professional advice.

JACO PRINSLOO: I think there are three pieces to this puzzle. One of them is definitely the IQ space – self-study. For instance, you are going to have to read. I spend every single day on Moneyweb. You can also look at websites like Investopedia. You can also listen to Paul Carter. There are quite a few good ones in South Africa, like The Fat Wallet show from Just One Lap. And then you can also watch some YouTube videos. The Financial Bunny is quite good.

The second leg is you are going to have to ask questions and ask for some help from people who have some experience and have dealt with this before. You can ask your parents, maybe a rich uncle or aunt, or even a professional. So you can speak to a consultant, a banker, a financial planner. Being a financial planner myself, I can tell you there is nothing that excites me as much as when clients take an interest in their finances.

And then, lastly, you’ll just have to experience it. You are going to have to go out and give it a try. You are going to have to invest R100, open a bank account, try to set up a budget. You are going to have to learn, you are going to have to fail. At the end of the day, even the most successful and rich people were beginners at some point. So, you are just going to have to start and then learn from your mistakes.

NOMPU SIZIBA: Yes. And I think the nice thing about professional advice here in South Africa is that you don’t necessarily have to pay for it directly, do you?

JACO PRINSLOO: No. There are a lot of free online services available, and a lot of professionals are willing to share their knowledge and their experience free to people who are interested.

NOMPU SIZIBA: With high unemployment rates and many falling into poverty as a result, which heightens income uncertainty, what are some of the precautionary tools that people can look to invest in now, so that if they do fall on hard times they have a fall-back?

JACO PRINSLOO: Nompu, there isn’t really cover or insurance available. So, the best we can do is if you think there is a chance of you losing your unemployment, is to make sure that you have low levels of debt, as well as an emergency fund. Normally we recommend an emergency fund equal to three to six months’ expenses. If you then lose your income, and if you’ve got low debt and low expenses, that means your savings will last you longer, and then that income will allow you to still cover some of your expenses until you find employment again.

NOMPU SIZIBA: Yes. Global markets have been volatile and, on top of that, the local economy has been growing at a snail’s pace for a number of years. This has resulted in lower returns on equity markets, with those who’ve been invested having second thoughts about being invested in capital markets. And of course, many people’s retirement savings are subject to all of these conditions. So, what should the mindset be when it comes to investment?

JACO PRINSLOO: My recommendation is to stick to your long-term goals based on your needs. So, if you require a certain level of returns to maintain your retirement income, then you are going to have to stick to your investment strategy. Switching to a lower-growth investment strategy now would only change the risk from a market risk – and currently the markets are not performing and are very volatile – into an inflation risk, which actually means that you will not have an income that can be inclusive of the inflation rate in retirement.

NOMPU SIZIBA: You raise a very interesting issue in your report about many South Africans not just taking care of their primary family members – that is, the immediate nuclear family – but also having to look after people beyond that. You are advocating that, whatever happens, individuals should look after themselves first. Just elaborate on what you mean.

JACO PRINSLOO: The issue with taking care of your family is, if you then should find yourself in a desperate financial situation, you won’t be able to take care of yourself, and then you will also need someone else to support you. When you are flying, the air hostess will advise you to put on the head mask first, which will then allow you to take care of other people. That’s what’s very important – to take care of yourself first, which will then put you in a position to take care of others if they require some assistance.

NOMPU SIZIBA: Many thanks, Jaco, for your time this evening.

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Financial Fitness is the answer!! Most people are paying HUGE amounts of interest whilst making paltry sums on their investments that are not (many have not) doing well. Getting out of debt FIRST, is key to getting ahead.

I have followed the above advice from an early age, and you know it really works!!! Unfortunately some people try their best to save and when finding that they have saved up a 10% deposit on something they really don’t need at the moment but desperately want, indebt themselves with 9x their original savings. To them, don’t blame the governor of the Reserve Bank for not lowering the interest rate.

The only debt one should ever incur is to acquire a home : Then pay it off ASAP. NEVER buy a car etc on Credit : Drive a Skidonk until you can afford to buy a decent car for cash .
Having said that , todays savers are predjudiced by Govt writing off debt and lowering interest rates to favour those who are financial Wallies !!

The only case where debt is sensibly valid is where the interest you pay on your debt is less than the interest you earn on savings/investment.

That almost never happens.

So avoid debt wherever possible. Maybe only borrowing to buy a house (best, a modest one at that) is an acceptable debt.

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