Have you ever played the 30 Seconds board game with someone who doesn’t quite understand the rules? For those with a competitive streak, having a teammate continually blurting out the answers to questions meant for an opposing team could drive them to violence.
Some will say it’s not that serious, right? It’s just a game.
But your team may have lost an opportunity to win, or at least edge closer to the win.
Well, it’s the same with money. Most of us are playing the game of money without knowing or fully understanding the rules. Money, in theory, is simple. But if you don’t follow the rules, you set yourself back or delay any success with it.
Mistakes happen, except that it gets tricky when you become a repeat offender. Financial education is not a trend but something we all need, so that we don’t make avoidable financial mistakes. Not being financially savvy can have a significant impact on the quality of the life you live and place limitations on the future you.
So, what’s required? Do we need to become investment portfolio experts who understand leverage, or worldly economists who can predict currency movements?
No, not all. But we do need to become more financially literate by learning basic financial concepts such as interest, savings, budgeting, investing, compound interest and so on.
In 2014 I was driving my ‘Kedibone’ – a 2005 VW Polo that had been a second-hand, hand-me-down purchase.
Kedibone is a Sesotho term for ‘one that has seen it all’, and she probably had seen it all, having been driven by four different people.
One of the preceding drivers had driven her into a building. She was written off but had somehow been mended. By the time I got her, she was missing a few parts and was a bit of a wounded machine.
One of Kedibone’s missing parts was a car radio – a crucial element for a young 20-something who wanted to cruise the roads of Johannesburg. One morning, tired of the radio silence, I decided it was time to upgrade my ride. I walked into electronics shop to buy a car radio.
Much to my dismay, I realised that I knew nothing about car radios, so I was at the mercy of an overly-excited sales guy.
He asked if I knew what I wanted. I said: “A simple radio that has an AUX, USB and Bluetooth connection will do. I don’t need anything fancy.”
He smiled and said “I have just the one for you.” He pointed to a fancy looking radio with a R1 800 price tag.
I cringed. How could a radio possibly be that expensive?
I had quickly Googled the night before and to my knowledge car radios were around R600.
“Why is it so expensive?” I asked.
I got the full-on sales pitch, buttered and sprinkled with fairy dust. To this guy this was the future of car radios; it basically did everything. It could almost drive the car for me. His final words to me were: “If you are going to buy a radio, you might as well buy the best.”
Aargh. I was sold, but my bank account wasn’t. I made peace with the fact that I could not afford a car radio.
I began to head out, telling him that I only had R800 cash and would unfortunately have to look somewhere else. He barely let me finish my sentence. “That’s no problem,” he said. “You can buy it on credit and only pay R178 for 24 months.
Beware the smiling sales guy
“I can make the deal even sweeter for you – we will install it for free,” he smiled.
I needed no convincing; R178 a month for just two years was something I could manage. I took the deal, signed on the dotted line, and left a happy girl with a car radio.
What I didn’t know was that I was signing up for a costly unsecured loan, at an interest rate of 23% over 24 months.
In other words, after two years I could have bought two car radios or more.
The numbers may look small and irrelevant, but this is the gateway to many financial mistakes for a lot of people.
Many of us take on financial agreements and products without fully grasping the implications. It was a car radio that time, but next time it might be a car and the numbers might run to hundreds of thousands of rands.
I could have saved for that car radio, and it would have taken me less than a year to buy it. I already had R800. But a quicker, yet detrimental option was offered and I craved the instant gratification. So I took it.
Understanding concepts like budgeting, savings and interest rates are not for the wealthy, or to make you rich. Rather, it’s about learning to manoeuvre through life and secure your financial future. Money is so integrated into our lives that every decision we make will have a direct or indirect impact on us at some point.
So go pick up a money book, or park right here for pointers on how you can ramp up your financial literacy.