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Financial literacy needed to navigate the bumpy economic ride ahead

04 July 2022 Motshabi Nomvethe, Head of Technical Marketing at PPS

The economic road ahead is by all accounts likely to be bumpy, prolonging the financial distress caused by the COVID-19 pandemic and further exacerbated by the knock-on effects of the Russia-Ukraine conflict.

Both inflation and interest rates are rising, increasing the cost of most basics such as food, transport, housing and debt. Most households are worried about their finances and some may decide to abandon their new year financial goals.

Adjusting finances because of changed circumstances can be knotty because many people do not have basic financial education. The Southern Africa Labour and Development Research Unit estimates that only 40.57% of the population is financially literate. Consequently, given the constrained financial situation, it may be tempting for small businesses and households not to purchase or stop their short-term business assurance or life insurance cover. The likely result for those who give in to this enticement is increased financial ruin.

For example, in the 2021 PPS Graduate Professional Index, a survey completed by 3 264 PPS members of the Professional Provident Society (PPS), a key finding was that most professionals have no financial plans. The survey results also show that 12% of professionals have no type of financial planning in place because they used up spare funds they had available during the pandemic. Their primary and current focus is on surviving.

If you are feeling overwhelmed, confused or uncertain about your finances, the first thing to do is to adjust your budget to suit your changed circumstances and/or get in touch with a financial adviser. Most financial institutions provide financial advice services.

Another recent survey conducted by PPS, the financial services company focused solely on providing intelligent financial solutions for graduate professionals, showed that 88% of the 2021 PPS Student Confidence Index survey participants would feel very confident about handling their finances if they learnt financial education at school. It also showed that 67% of the 3 304 participants would consult a financial adviser.

So, approaching an expert financial adviser may not be a bad option as, borne out of the fact that in the same survey, most of the respondents did not fully understand finances. Only 41% felt comfortable with savings or investing and 42% have an average understanding of insurance. The students who participated are undergraduates and postgraduates studying at a public university or university of technology and studying towards a profession-specific degree such as engineering, medicine, law or accounting. They responded to the survey through online questionnaires and virtual focus groups.

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