While a nosediving economy has taken its toll on the financial wellness of South African households, financial literacy and financial education levels continue to play a significant role in South Africans’ financial stability.
More importantly, how you choose to use the information available to you dictates your financial standing.
The Momentum Unisa Household Financial Wellness Index released on Thursday shows that a change in behaviour is still the fundamental difference between the 25% classified as financially well and the 75% who aren’t.
Professor Bernadene De Clercq, head of personal finance research at Unisa, says the Financial Wellness Index advocates an improvement in financial education and financial literacy.
“We need to improve financial capabilities and provide an enabling environment,” she says.
These findings tie in with a research paper, Measuring and Profiling Financial Literacy in South Africa, published last year by the South African Journal of Economic and Management Sciences, which showed that although financial concepts or terms are well engrained in the minds of South Africans, positive financial behaviour is lacking.
Dr Elizabeth Nanziri, senior lecturer of development finance at the University of Stellenbosch’s Business School and co-author of Measuring and Profiling Financial Literacy in South Africa, notes that in the South African environment, the lack of transparency of financial institutions in terms of bank fees and charges deters potential users of financial products.
“Additionally, the existence of credit facilities can have the unintended consequence of [consumers] not saving regularly,” she says.
Dr Nanziri’s research also found lower than average levels of financial literacy evident among women, black South Africans, those with less than matric (high school), and those in the age group 18-29.
Her research further supports the findings of the Momentum Unisa study – showing that people receiving money from formal sources have higher financial literacy scores while recipients of grants and income from informal sources have below-average scores.
“This difference could be owing to formal employers requiring employees to use formal financial mechanisms to receive salaries and other employment benefits, which in turn requires financial proficiency,” she says.
Financial literacy programmes on the rise
The Momentum Unisa Financial Wellness Index found that over the last year, only two factors improved – net asset wealth and education levels.
Statistics SA’s 2018 General Household Survey showed that during 2018 about 45.2% of people 20 years and older had a matric/national senior certificate or higher qualification compared to 43.1% in 2017.
Chief marketing officer at Momentum, Nontokozo Madonsela, said the financial services giant runs several financial literacy initiatives, including:
- Metro Kickstarz – a programme teaching high school learners the basics of financial management and entrepreneurship while tapping into the popular sneaker culture.
- Making Money Matter – a financial literacy board game aimed at Grade 9 learners and aligned to the Economic Management Science curriculum.
- Motheo Financial Dialogues – a programme for final year students at Technical and Vocational Education and Training (TVET) colleges, which prepares them for the financial responsibility of earning an income for the first time.
Momentum’s financial literacy programmes in numbers
Over the last ten years, the South African Insurance Association has spent more than R100 million of member contributions on consumer education initiatives that have reached television and radio audiences as well as school children.
“It is only through such endeavours that we may be able to have most South Africans participating meaningfully in our economic growth and in the opportunities that may arise from it,” says association chair Lizé Lambrechts in its 2019 annual report.
The Association for Savings and Investment South Africa (Asisa) also runs several financial literacy programmes, including its Saver Waya-Waya programme aimed at TVET college students, Project Qaphela aimed at National Union of Mineworkers members, and Retirement Fund Trustee education workshops.
Behavioural change needs to back up education improvements
A simple improvement in education and financial literacy is not enough unless consumers are prepared to change their financial behaviour accordingly. The percentage of households considered ‘financially well’ declined 1% from 26.5% last year to 25.5% this year. Almost three-quarters of South African households have been ‘financially unwell’ for some time.
A factor identified within the ‘financially well’ group is a level of financial literacy that allows them to identify:
- How much money they need for retirement.
- How much to save and invest for retirement.
- How much monthly income to use towards repaying their debt.
- How much life insurance they require.
- How much short-term insurance they need.
Even with this level of financial literacy, knowing what to do is not the same as actually doing it.
New York Times columnist and author of The Behaviour Gap, Carl Richards, says often the difference between the higher potential returns of an investment and the actual earned returns can be chalked up to investor behaviour. Basically, if you let your emotions take over and move your money around in knee-jerk responses, you usually end up earning lower returns.
Women need to take more control of their finances
The Financial Wellness Index showed that households where a female is the most financially knowledgeable person, earned only 36.8% of all salaries and wages, pulled in 31.8% of investment income and took home just 23.4% of net profits.
Around 20% of salaries and wages earned by females come from women with a tertiary qualification, but they constitute just 8.8% of women.
The research showed a need to improve the ability of women to take control of situations, their financial literacy, access to affordable and quality financial advice, assistance with financial planning and goal setting.