Clarence Nethengwe, MD of Old Mutual’s Mass and Foundation Cluster.
Statistics show that South Africans continue to be big borrowers and poor savers, and the financial services sector needs to intensify its efforts to address the situation.
This is the view of Clarence Nethengwe, MD of Old Mutual’s Mass and Foundation Cluster, who says reducing indebtedness and improving savings in South Africa is a major socio-economic challenge facing us as a society.
Our metro working population spends an average of 19% of their salaries on paying back debt, according to the 2017 Old Mutual Savings & Investment Monitor, while the National Credit Monitor reports that only 48% of the 24 million credit active consumers in the country were up to date with their credit repayments in the first quarter of 2017.
“Although these bad money habits are fuelled by the current economic environment and rising living costs, it is a lack of financial knowledge that entrenches them,” says Nethengwe.
“While most South Africans know there is a connection between education and long-term prosperity, too few make the connection between savings and wealth creation.” The financial services sector has an important role to play in helping to build a society that understands the importance of financial planning and commitment.
“By scaling up practical financial education we can empower South Africans to take control of their future and make it more financially secure.”
Encouraging more responsible and informed decision-making not only benefits individuals, it also boosts the prosperity and financial stability of the whole nation.
Healthy, financially stable economies are built largely on the savings of individuals. Strong national savings help to finance national development projects and reduce South Africa’s dependency on foreign investment.
Financial education is as urgent as other types of education, Nethengwe believes. “Its role in uplifting lives and transforming the economy cannot be underestimated. The more effective our financial education initiatives, the more motivated and equipped consumers will be to make financial decisions that will improve not only their own long-term security and wellbeing, but also help combat the national plague of poverty and inequality.
“The challenge of guiding people to do great things with whatever money they have extends to all the players in the financial services industry. It’s up to all of us to work together to help build a savings culture that will transform our society.”
Ideally, concepts such as compound interest need to be taught from a young age, to help counteract the celebrity-driven allure of conspicuous consumption. Today’s consumer driven society has come to regard luxury vehicles, expensive clothing, the latest cellphones and property in upmarket suburbs as highly desirable – even essential - status symbols.
The craving for instant gratification is evident too in our festive season binge shopping. There’s a reluctance to think long term and a lack of awareness that debt can be hazardous to your financial health, unless it’s part of a carefully considered financial plan.
A young professional who qualifies for vehicle finance of R10 000 per month, for example, needs to know that they would be better off over the long term if they drive a less expensive car for a few years and saves the difference to reap the rewards of compound interest instead.
Financial education, and knowing how to plan for both long-term and short-term needs, will set more South Africans on a wealth creation path.
“We also need to dispel the myth that financial planning is only for the rich and elite,” Nethengwe points out. Even those earning a basic income or students who receive government funding or have taken out student loans need to have a financial plan to map out their future.
“With financial knowledge and a more disciplined savings mind-set, South Africans will be far better equipped to improve their personal finances, and open opportunities for prosperity,” concludes Nethengwe.
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