The role of education in the financial service industry

19 August 2007 Gareth Stokes

There is little doubt that much of the recent regulation in the financial services industry would have been unnecessary if South Africa's financial consumers were more financially literate. The legislation was necessary to reduce the countless opportunities for exploitation brought on by the consumers' limited understanding of even the most basic financial principles.

Existing regulation tackles the problem from the supply side, including product development, marketing and distribution. Acts such as the Financial Advisory and Intermediary Services Act (FAIS) and the National Credit Act (NCA) are there to ensure that the product developer, marketer and distributor tow the line. These Acts have (for the most part) the interests of the end consumer at heart.

Acceptable peripheral damage

Of course the raft of regulation has some unfortunate side-effects. Various regulatory requirements meant that the supply of product and services in the financial environment becomes more expensive. And it is inevitable that the customer will bear the brunt of this additional expense.

More peripheral damage is caused by the restriction imposed through some of the regulatory requirements. One cannot help but think the financial services industry is still in for a few surprises as certain requirements of the NCA come into full effect. We could see a significant slowdown in the credit lending environment to the detriment of both consumer and credit supplier. Credit dependent industries such as the passenger vehicle market, the manufacturers and retailers of furniture and appliances and the real estate industry are probably already experiencing early signs of a credit squeeze.

For the most part the damage is an acceptable compromise for leaving the consumer in an overall better position. By regulating financial services providers and their representatives the regulators ensure that even the financially illiterate consumer is fairly treated.

Uplifting the consumer with education

The next step in the improvement of the financial services industry as a whole is to try and uplift and educate the potential consumer. An honourable goal would be to impart a basic level of financial literacy to every South African citizen. Given current levels of literacy and schooling this is an almost insurmountable challenge.

That said one cannot disregard the benefit that goes hand in hand with financial education. Consumers who have a solid knowledge of the financial services environment can also appreciate the importance and relevance of the products on offer. Every individual who opens a bank account and understands how to manage his basic financial affairs presents a new opportunity for entry level financial services offerings.

A focus on education will ensure that more potential clients are brought into the universe to which financial service providers can sell and market their product. For this reason it is essential that the major industry players in the financial services sectors throw their weight behind projects of this nature.

Starting at the ground floor

FAnews Online recently featured a joint press release from the South African Insurance Association (SAIA) and the Black Brokers Forum (BBF). The release detailed a project through which youth were encouraged to learn more about insurance and financial matters.

"The project took the form of a speech contest that was held in one hundred and seventeen (117) schools in KwaZulu Natal. The Finals of the contest were held, and the winners selected, at the Port Shepstone Civic Centre in Kwazulu Natal yesterday, 15 August 2007.  The mayor of the Hibiscus Coast, Mrs Shusha, attended this important event and addressed the approximately 230 learners and stakeholders." Mr Artwell Hlengwa of the BBF stressed the importance of educating learners about the financial services industry and how to handle their own finances.

SAIA and the BBF are supported in this type of project by other stakeholders, including the Life Offices' Association (LOA) and the Financial Services Board (FSB). There efforts to educate the youth and raise the general levels of financial awareness in the country are certain to pay dividends in the future.

All participants in the financial services industry would do well to follow suit and invest time and resources in similar programmes. There is no such thing as too much financial education!

Editor's thoughts:
Educating the South African consumer on financial matters is definitely a worthwhile pursuit. Do you think that a subject like basic financial literacy should be included in the school curriculum, or should the industry focus on extra-curricular programmes and adult education? Send your comments to


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