Gustav Neethling, Director of The Financial Emporium, believes that financial literacy is as important as general literacy in South Africa.

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“Financial institutions and businesses are bombarding consumers, from various levels of literacy, with credit opportunities – ranging from credit cards, store cards and various forms of loans. Without the adequate knowledge or a proper view of your total financial situation, a consumer can easily get into trouble,” he adds.

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Consumers have low understanding about finances and, coupled with further purchasing opportunities like online shopping, the biggest part of the South African population are overextending their credit and accumulate debt, which spirals and eventually negatively impact on their long-term financial wellbeing.

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Financial literacy, or the ability to understand enough about finance (through knowledge) in order to make financially responsible decisions, includes aspects like how to avoid debt, what is good and bad debt, understanding how checking accounts and credit worthiness works and how to use a credit card responsibly. This knowledge influences decisions most people make when budgeting, buying a home or car, financing their children’s education and ensure a financially viable retirement.

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“At the moment, financial decision making is becoming increasingly difficult, also because of the current economic conditions in South Africa. I agree with Investopedia who identified key trends showing the importance of using financial literacy to make informed decisions on your finances,” Neethling says.

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These trends are

• Consumers are shouldering more of the financial decisions like with retirement savings. In the past pension funds used to provide most of an individual’s retirement funding. Consumers are now offered different options, like provident funds and savings plans and also have to find additional means to support their eventual retirement.

• Financial products that consumers have to decide between are generally complex and filled with financial jargon, which are not understandable by the general consumer. Things like varying interest rates and risk needs to be taken, which most people are not adequately educated to make. And the sad thing is that decisions taken in this regard, with a large range of options, can affect the consumer’s ability to finance a car or home, education or save for retirement.

• Government aid or SASSA pensions are believed to be hugely inadequate to provide for people dependant on it as their only source of income.

• People tend to live longer, meaning more retirement savings are needed. To add to this, inflation is also rising, contributing the financial burden on a retiree (or the provision for retirement)

• There are an immense amount of varying choices for consumers, making it a very difficult exercise for especially financially illiterate consumers to make decisions – and these options include banks, credit unions, brokerage firms, insurance firms, credit card companies, mortgage companies, financial planners, and also microlenders.

“Adequate financial literacy can assist the consumers to realise the importance of saving enough to provide adequate income in retirement, while avoiding high levels of debt. In general, those people with low financial literacy borrow more, have less wealth and end up paying unnecessary fees for financial products. This group also does not invest, has trouble with debt and a poor understanding of the terms of their mortgages or loans. Something I have to add is that this is, however, not restricted to low income earners,” Neethling stresses.

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“South African decision makers and industry players needs to do their part to increase financial literacy in South Africa. But adding to this, consumers should also read and find out and ask questions to relevant people to help them educate themselves. An increase in financial literacy – even a small percentage – will have a huge effect on consumers and their ability to provide for their future while avoiding the pitfalls of debt or becoming entangled in unsuspecting unlawful lending practices and scams,” he concludes.

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