You can be young and financially smart – tips from a financial adviser for the youth of South Africa

South Africans have faced a range of increased costs across most spectrums, from rising fuel prices, increased inflation and interest rates, and a month-to-month battle with mounting food prices. The cost of living increases have placed consumers under pressure and it is becoming more difficult to save.

According to Momentum | Unisa research, consumers already have a poor savings culture. It also noted that South Africans are not well-informed about economic and money matters. As such, their personal financial decisions are not always optimal.

Janine Horn, Financial Adviser at Momentum, says the research also indicates that consumers, unfortunately, do not have greater access to emergency savings. In fact, many consumers have been forced to sacrifice saving in order to cover expenditure and service their existing debts.

Horn says this is particularly true for South African youth who are feeling financially exposed and insecure, meaning that any small adverse event can contribute to a large deterioration in the state of their personal finances.

Given the pressure on income and expenditure, they have limited funds to repay out-standing debts. Let alone focus on emergency savings and retirement planning.

In line with July Savings Month, an initiative that aims to challenge consumers, to strive towards living within their means and to reinforce positive financial behavior, Horn highlights tips to help youth struggling under the financial weight.

You can be young and financially smart – tips from a financial adviser

Janine Horn, Financial Adviser at Momentum, offers South African youth the financial advice they need on their journey to success.

You’ve graduated, you landed your first job, you purchase your first car, and finally move out of your parent’s house. The bills never stop coming. You’re officially an adult. While this is an exciting rite of passage that we must all go through, the financial burden of adulthood can be challenging to navigate – especially in today’s cloudy economic climate.

According to the latest Momentum/Unisa Consumer Financial Vulnerability Index, rising food and fuel prices, unemployment, political instability, and the Russian invasion of Ukraine were identified as further risks that could increase consumers’ financial vulnerability in the future.

The index also noted that South Africans are not well-informed about economic and money matters. As such, their personal financial decisions are not always optimal. Financial Adviser at Momentum, Janine Horn, says this is particularly true for South African youth, many of which find themselves in a desperate situation.

“We’re all struggling financially, but when you earn less and have less experience, the financial troubles can compound, especially if you already have people depending on your income,” says Horn.

Horn outlines four common money mistakes to avoid so you can set yourself up for success instead of regret down the line:

Delaying saving for retirement

Your retirement should be a significant part of your financial plan, says Horn. Research shows that only 6% of South Africans can retire comfortably. This means the other 94% will not be able to afford their current lifestyle when they retire.

“One of the reasons why people find themselves without enough money to retire is because they start saving late,” says Horn. “You must start early and invest as much as you can while you are young to ensure you reach your retirement goals.”

Horn says those who start their retirement savings later in life will never catch up to an early starter. “It’s all down to compound interest, which is essentially interest on interest over time and is why it literally pays to start saving early.”

Furthermore, Horn says many youths don’t understand that the tax man provided useful benefits to those who save into retirement products. “One of the most under-utilised tax-deductible advantages is the retirement contribution tax deduction which allows up to 27,5% as a cumulative deduction against your PAYE when contributing to a retirement plan.”

Not setting up an emergency fund

Many consumers have been forced to sacrifice saving in order to cover the rising cost of living and service their existing debts. But Horn says saving is a key component of a sound financial plan.

“When life happens, you are going to need access to money to tend to unforeseen circumstances” advises Horn. “Whether it’s a car that broke down, a broken fridge or a leaky roof… there are a million things that can go wrong. It is advisable to have an emergency savings fund to manage these expenses.”

Using credit as money

Despite what many young people with a freshly printed credit card may think, Horn says credit isn’t an excuse to live a large lifestyle. “Debt may be the single greatest stressor when it comes to financial planning,” says Horn.

Credit cards, clothing accounts, and small loans can really add up. “Don’t forget that we live in a world where inflation is becoming a real problem. The higher inflation rises, the more our debt is going to cost us.”

Not having medical aid, and life and disability cover

When Horn spoke about how ‘life happens’, that advice extends to much larger issues that may turn your life upside down. A death in the family, a horrible accident that leaves you disabled, or even emergency surgery for a suddenly occurring condition – you can’t predict what life will throw at you. This is why Horn says you need to be prepared for every eventuality.

“When it comes to insurance, the whole point of it is to have the reassurance that when these events occur, you are covered financially,” says Horn. “You don’t want to know what one stay in hospital can cost you or even living with a permanent disability. Understand your risks and get the insurance you need so you are not left penniless and unable to cope.”

According to Horn, it is unlikely that the economic situation facing most South Africans is going to get any better any time soon. “The likelihood that you are going to run into financial trouble is high. If you’re worried, talk to a financial adviser, and they can assist you with consolidating your debt, creating savings goals and managing your retirement and insurance portfolio. You never have to walk this path alone,” concludes Horn.