Financial Literacy should be a compulsory subject in South African schools – not just a watered down once-a week option, but a full-blown subject on which they need to write exams. Even better, why not start this in primary school level to introduce children to the basics of financials, so it becomes engrained in their lives?”

 

Gustav Neethling, Wealth Manager and Director at The Financial Emporium, adds, “This is the only way that we can lift the low level of financial literacy across all levels of society. Currently people – even educated – are heavily indebted, they struggle to budget, they live above their means and they are not saving,” he stresses.

“Of course adequate attention should be given to teacher development to ensure that teachers are money smart. As an example, in Australia they have a financial literacy programme for teachers, which entails that once teachers are financially literate, they can incorporate money matters into their daily classes. I believe that by empowering teachers, they will improve their own finances and, subsequently, share their knowledge with pupils from a young age. Whether the pupils and teachers will be applying their knowledge in practice, is another case, but his will at least lay the groundwork to which they can refer to, almost like values and morals,” Neethling adds.

 

He believes that this will prevent people reaching working age, without being able to take care of their finances. “Many graduates go into the labour market with little understanding of how to manage their finances. They spend as soon as they receive their first pay cheque on unnecessary items. Many fail to save or budget, even though they know that this could improve their financial well-being, leading to a lack of properly managing their salaries.”

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“An understanding of basic financial concepts will equip people to make sound decisions related to their financial management, including issues like saving, investing and borrowing. On the downside, financial ignorance carries significant costs.  Consumers who fail to understand the concept of interest compounding spend more on transaction fees, run up bigger debts, and incur higher interest rates on loans. They also end up borrowing more and saving less money,” he explains.

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“Illiteracy is by far the biggest contributors to our low level of savings and high levels of credit, but definitely not the only one. Others are:

• People have developed almost a culture of immediate satisfaction – they do not want to save and wait for something- they want it now.

• Societal pressure to ‘measure up to the Jones’, thus living above their means and using credit to finance that.

• Feeling that people do not want to and do not need to plan their finances – they want freedom to spend as they feel fit and do not want to think about their future (like providing for their retirement).

• South Africa has a ‘spending culture’ and not a ‘savings culture’. We need to learn to save first and then spend, even if that means only saving an amount of R10.

• Linking to this, a lack of control. Debt and expenses mounts up and people loses control, but do nothing to regain control – almost hoping the problems will disappear. This happens to even educated individuals who are busy and loses control or ignore basic principles of financial planning.

• Challenging economic circumstances where individuals use credit to survive, without being able to pay it back and without scope for saving.

 

“Addressing financial literacy is crucial for South Africa, in the midst of challenging economic conditions, as it will eventually help people to get out poverty. A financially literate population will understand financial facts and will enable them to make informed decisions, know where to go for help, and take actions that improve theirs and the country’s financial health.”

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Neethling also believes that educating people through financial products. “To explain, many Pakistanis borrow money through community-based schemes, but this is not where it ends. The Pakistani government has an ‘education through loans’ programme according to which people signing up for the loan has to receive financial education. To localise this, we can use financial literacy programmes at savings vehicles like stokvels, or even force all people signing up for loans to undergo a fully accredited education programme.”

 

“Another aspect that could benefit South Africans is if employers integrate financial education and training into their strategies. “As an example, some employees are obliged to belong to a provident fund, but have no idea what it is, how it works and how to manage it. The same goes for Unemployment Insurance Fund (UIF) and medical aids. And linking to this, should the financial education in schools realise, employers can take it a level further and touch on (or get companies to do it) issues like bonds and retirement savings, once the basic foundation has been laid.”

“Financial literacy will enhance saving and makes individuals less vulnerable to predatory lending and financial scams, which there are plenty of. To add to that, financial literacy will lead to financial freedom - not being wealthy, but having control over your own money,” Neethling concludes.

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