Dire financial literacy levels in rural areas

An informal mini-survey into financial literacy among guardians in rural areas has revealed that an average of 50% are unable to complete forms in their mother tongue and 90% do not know basic financial literacy concepts such as the difference between capital and interest.

Giselle Gould, business development director at Fairheads Benefit Services, said that the statistics were based on a sample of around 1000 guardians during workshops held this year in South Africa and neighbouring states. The workshops are a new initiative aimed at educating guardians about beneficiary funds and umbrella trusts that hold funds for the benefit of minor children in the guardians’ care. Monies are placed into these funds at the discretion of retirement fund trustees who need to decide on the distribution of death benefits when a retirement fund member dies. [See Notes below for more information]

The guardian workshops take the form of a presentation followed by an open-floor session for questions. The language medium is English with mother-tongue interpreters at hand. The sessions cover how beneficiary funds and umbrella trusts work and then specific aspects such as how to claim for special expenses, the need to update contact details in an “annual certificate of existence” and what to do in the event of a beneficiary passing away.

In the Eastern Cape, 30% of guardians were illiterate and 70% had literacy levels equivalent to Grade 5.

In Lesotho and rural KwaZulu Natal (Empangeni area), the statistics were similar, but improved in the urban areas of KwaZulu Natal (Durban and Pietermaritzburg) where 70% of guardians had an average of Grade 12 literacy levels.

Generally during the workshops, when guardians were asked to complete a certificate of existence form in their mother tongue, it was found that 20% could complete the form correctly, 30% could partially complete the form and 50% could neither complete nor understand what needed to be done. The annual completion of this form is crucial because, given the high levels of identity fraud, administrators stop payments unless they know that the beneficiary is still alive and at the same address.

The most shocking statistic came from Mozambique, where basic illiteracy levels (no reading or writing) were up to 80%. According to Ms Gould, school attendance in Mozambique has been poor for decades and the medium of instruction is Portuguese, not most people’s mother tongue which is Shangaan.

Fairheads will be holding guardian workshops in Gauteng in October and expects a higher literacy level than in the rural areas with the exception of guardians coming from mining communities such as Westonaria and Carletonville.

Commenting on the survey, Ms Gould said it showed that trustees need to assess carefully whether guardians are competent to manage death benefit payouts on their own or rather to pay the funds into a beneficiary fund. If a beneficiary fund is used, an income is paid to the guardian for the subsistence of the child and capital requests for education and the like are carefully monitored by the fund.

“Given the low literacy levels, this would generally appear the safer option, but obviously then the responsibility lies with the beneficiary fund administrator to communicate and educate guardians in the workings of the fund,” said Ms Gould.

She welcomed the recent announcement by the Financial Services Board to embark on consumer education projects among the general public.