Category Retirement
SUB CATEGORIES Annuties |  General |  Savings & Investments | 

We all are responsible for helping people to become more financially literate

26 September 2022 Stanley Gabriel, CEO of Momentum Investo
Stanley Gabriel, CEO of Momentum Investo

Stanley Gabriel, CEO of Momentum Investo

Every year on September 8, we celebrate International Literacy Day, and South Africa has just saluted the importance of financial literacy with Money Smart Week South Africa (from 29 August to 4 September 2022).

The International Network on Financial Education (INFE) of the Organisation for Economic Co-operation and Development (OECD) proposes how we should define financial literacy. Their framework, which combines knowledge, attitudes, and capabilities, is used in financial literacy surveys worldwide.

Most surveys try to determine what people know about four financial decision-making concepts: knowledge of interest rates, interest compounding, inflation, and risk diversification. These are complicated terms, but they are tested with questions such as: Is it safer to put your money into one business or investment, or many businesses or investments? People are considered financially literate when they can correctly answer questions on at least three of the four concepts.

But before we look at how financially literate people are, let’s look at its importance.

The Standard & Poor’s Ratings Services Global Financial Literacy Survey summarises how costly being illiterate about their finances can be for consumers:

• If they don’t understand interest compounding, they spend more on transaction fees, run up bigger debts, and incur higher interest rates on loans.
• They end up borrowing more and saving less money.

Compared to that, financial literacy has the following benefits for people:

• They do a better job when planning and saving for retirement.
• They are more likely to diversify risk by spreading funds across several options.

The S&P survey highlights that financial literacy is a global issue – not just in developing countries. In 2014, they interviewed more than 150 000 people from more than 140 economies and established that only one in three people in the world are financially literate. In northern Europe, up to 65% of people are financially literate, but the European Union averages at 52% of adults. On average Japan and the United States are 55% financially literate. In the BRICS countries, Brazil, the Russian Federation, India, China, and South Africa, the average is 28% – with South Africa at 42%.

Worldwide and in developing countries the average gender gap in financial literacy is at five percentage points, but in South Africa, financial literacy is equally low for women and men, according to the S&P survey.

South Africa has done its own financial literacy surveys, using the same principles as the S&P survey.

The Financial Sector Control Authority (FSCA) (or its predecessor) asked the Human Sciences Research Council (HSRC) to do surveys in 2011, 2012, 2013, 2015 and 2017. The overall financial literacy recorded in the 2018 report was 54%.

For the latest survey 3 067 people were interviewed. Most respondents could do basic arithmetic. Only 16% understood the concept of inflation, 46% could answer a basic interest question, and 35% could answer a compound interest question.

Most people are aware of a pension fund and informal savings club, but less than three out of five have heard of an education contract. Less than half are familiar with unit trusts, provident funds or investment contracts. Only a fifth of the population held any of the products listed.

The groups with the highest financial literacy score were the tertiary educated, the wealthy, those with full-time jobs and people who reside in formal urban areas.

Young people were found to have relatively high levels of knowledge and understanding. However, their level of financial literacy was low.

The yearly Momentum | Unisa Science of Success Insights report has similar findings. It says that the youth are over-confident regarding their financial abilities but scored a very low average financial literacy of 36 out of 100.

For the past 10 years, the report has aimed to give South Africans tools to help them understand and manage their financial health. According to the report, many South Africans are financially unwell because of poor decisions and/or financial illiteracy: “Households that make use of financial expertise, conduct detailed and continuous financial planning, manage their debt well, and stay informed on financial matters are in a better position to turn the tide of their financial outcomes in their favour.”

It also says that improving financial literacy is a factor within the control of households. The report encourages households to follow education programmes to become financially capable and embrace positive financial behaviour.

Prof Bernadene De Clercq, one of the compilers of the Momentum | Unisa report, says: “As is evident from the available research, the financial literacy levels of the country are not where we want them to be.” She says to improve them will require a collaborative effort from individuals, financial institutions, and government. “Collectively we can address this challenge – we all have work to do,” she says.

From Momentum’s side, we are proud to share some of what the group is doing to improve financial literacy.

According to Claire Klassen, Consumer Financial Education Specialist in our Corporate Social Investment department, they reached over 17 000 financial literacy participants during the 2021 financial year. They reached 3 500 persons face-to-face, a much more costly exercise than online projects.

In partnership with FinEazy, giving participants access to learnings in English, IsiZulu and IsiXhosa via WhatsApp, Facebook Messenger, online and SMS, there were two highlights:

• Future Finance Friends is aimed at high school learners from Grade 9 to 12. Using avatars, the participants register on a chatbot to learn basic financial literacy. The curriculum has 25 topics.
• Momentum Money Shift is aimed at young adults at universities, colleges, in work readiness programmes and on job sites. The course has 50 topics.

Recently the Momentum Metropolitan Foundation board approved a new consumer financial education strategy. “We are excited to start with the first phase of our project where we discuss the curriculum development and content design,” says Claire.

As a member of the Association for Savings and Investment South Africa (ASISA) Standing Committee on Transformation, Skills development and Education, they also collaborate through two working groups to encourage a more focused approach in the financial services sector regarding financial education.

From Investo’s perspective, our story demonstrates that we understand that saving for your goals in life isn’t always easy. “It’s intimidating, emotional and time-consuming without proper help.” That is why we want to empower people to reach their goals.

One way of doing this is making sure that we communicate to clients in clear or plain language. We try to explain financial concepts in simple, jargon-free words. In our brochures, letters and other communications, we eliminate big terms and corporate speak to show that real people are speaking to clients.

Many South African laws prescribe plain language too. But that is not why we use it.

We want to earn clients’ trust by being transparent about what our products can and cannot do for them. We want to empower Investo clients with the democracy of clear information.

Quick Polls


Which aspect do you think is most critical for the future success of financial advisory firms?


Embracing technological advancements
Rethinking fee structures
Focusing on inter-generational wealth transfer
fanews magazine
FAnews June 2024 Get the latest issue of FAnews

This month's headlines

Understanding prescription in claims for professional negligence
Climate change… the single biggest risk facing insurers
Insuring the unpredictable: 2024 global election risks
Financial advice crucial as clients’ Life policy premiums rise sharply
Guiding clients through the Two-Pot Retirement System
There is diversification, and true diversification – choose wisely
Decoding the shift in investment patterns
Subscribe now