Financial literacy is a major problem in South Africa, and has been for a number of years. This has led to the fact that South Africa is considered a nation of non-savers as opposed to savers. It is safe to say that the number of people who are able to retire comfortably in South Africa is low by global standards.
Government is aware of this and has embarked on a campaign of radical economic transformation and financial inclusion where it hopes to widen the net of participation within the financial services sector. To do this though, financial literacy needs to be increased.
Crunching the numbers
The Financial Services Board (FSB) recently released the findings of its literacy report, and the numbers are interesting.
The report shows that 66% of respondents have some personal involvement in household daily money management. Twenty six percent of the people surveyed are solely involved in money management while 40% reported a joint effort. More than half (58%) of South Africans have a household budget; 34% reported no budget, and 6% were uncertain about what a budget is or refused to talk about it.
A majority (57%) always carefully consider whether they can afford a purchase before doing so, with a further quarter (24%) saying they do this often. This means that 8 in 10 South Africans (81%) exhibit a considered approach to spending.
This is important information to advisers and financial planners as they gain key insights on how to approach the topic of money and purchasing products which would help clients save for the future.
Coping mechanisms
After considering the information above, it is safe to say that South Africans frequently find themselves in precarious positions.
Further to the information above, South Africans had the following to say about coping mechanisms when it comes to their finances. The FSB report shows that almost two thirds (64%) stated in 2015 that they always or often keep a close watch on their personal finances.
Despite these positive messages, just over a third of South Africans (37%) report that they always pay their bills on time. Nearly half (48%) personally experienced income shortfalls.
Two common coping responses were pointed to:
There was a nominal reliance of financial products. This can either work in the advisers favour or may point to a situation where some of the survey participants were unable to pay for advice.
Attitudes towards saving
So despite all of the negative news about South Africans and their saving habits, we can establish some basic facts. South Africans are aware of their financial status and for the most part are trying to cope with the financial situation that they find themselves in.
The report released further findings. Roughly half (49%) of all adult South Africans said that they always or often set long-term financial goals and work hard to achieve them (27% always; 22% often).
Roughly a third (31%) stated that they did not worry about tomorrow and only thought about today, while slightly over half (55%) indicated that they worry about provisioning for the future.
The report adds that 41% found it more satisfying to spend money than to save it for the long-term; however, 44% disagreed with this viewpoint. This ambivalence is likely to reflect the difficulties involved in saving given short-term financial needs.
A troubling conclusion
The report concludes that poor financial literacy negatively affects financial consumers in a myriad of ways, one of which is suboptimal choices regarding suitability of financial products which increases their vulnerability to predatory lending and financial scams.
Poor financial literacy also impacts the ability of an individual to start a business. Financial illiteracy undermines entrepreneurship in South Africa.
The country faces considerable challenges of overcoming unemployment, poverty and inequality during current period of global economic uncertainty and slow growth. Such challenges are compounded by low levels of financial literacy.
Editor’s Thoughts:
With such levels of literacy, the scene is perfectly set for advisers and financial planners to step up and provide the public with the necessary education needed to become financially literate. It’s about building trust and a rapport with future clients so they feel that you have their best interests at heart. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.
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