One of the main irritations with our current schooling system is its insistence on providing students the knowledge needed to acquire a job instead of teaching skills to manage or maximise income generated from those jobs.
A holistic approach to education is necessary because too many South Africans are managing their financial resources by chance or luck. Often the financial decisions made by individuals who lack financial education have negative consequences that impact their lives for many years, causing unnecessary depletion of financial resources from households’ week after week, month after month and year after year.
It is important to increase the financial literacy of South Africans because this knowledge offers individuals and families the opportunity to enhance or maintain their long-term financial well-being and economic security. In fact, raising the level of financial literacy of South Africans allows everyone to participate in a broader spectrum of the economy and creates a more stable and robust marketplace.
Moreover, increasing one’s financial literacy can yield economic security, which can eliminate the financial stress that leads to other socio-economic problems that have a negative impact on society. This statement is further amplified by multiple studies globally that indicate that financial stress leads to bad financial decision-making such as acquiring too much debt in the use of available financial resources and in other matters such as divorce that are detrimental to one’s financial well-being or economic security.
The number one mission in South Africa must be a joint venture aimed at finding a sustainable and effective solution to reducing indebtedness and improving savings in South Africa. This is a major socio-economic challenge facing us as a society and we’re truly failing to address it.
Statistics show that South Africans continue to face an enduring issue of debt and poor financial management.
Those living in our metros spend an average of 19% of their salaries on paying back debt, according to the 2017 Old Mutual Savings & Investment Monitor, while the National Credit Monitor reports that only 48% of the 24 million credit active consumers in the country were up to date with their credit repayments in the first quarter of 2017.
We also now have more people on social grants than there are people working. This is not because South Africa lacks the resources to create an inclusive economy for all, but rather we have failed to equip people with the knowledge to properly make use of those resources.
Put simply, our problem is not having enough, but rather wasting what we have. The current topic of land expropriation without compensation is a symptom of this ailment.
The current economic environment and rising living costs, is directly fuelled by a lack of financial literacy. Knowing this, one must ask why such education is commoditised. Is it the fear that a financially literate society will cause a collapse in the need for financial advisers? Surely this can’t be the case. Surely a financially literate society would result in a society that understands the importance of financial planning and commitment? By scaling up practical financial education we can empower South Africans to take control of their future and make it more financially secure. Healthy, financially stable economies are built largely on the savings of financially literate individuals.
What is financial literacy
Financial literacy is defined as the citizens’ ability to make rational judgements and decisions with respect to the use and management of their financial assets, commonly money. It involves both the understanding of basic financial concepts and the ability and discipline to use that information to make informative personal decisions including; when to spend, when to save, budget preparation and implementation, choosing the right financial products, among others.
It goes an extra mile to determine one’s ability to exercise proper judgement when offered access to credit. It has a great bearing on the level of financial inclusion in the economy. Our economy suffers from the disease of financial illiteracy, a situation that has significantly dimmed our growth potential, development agenda and poverty alleviation efforts. Empirical studies on financial literacy show that consumers in most African countries do not have adequate financial knowledge, skills and understanding to make informed decisions. Yet we wonder why the continent continues to be one of potential as opposed to realisation.
Nations with high financial literacy levels tend to record high growth rates and minimal poverty levels too. What this means is that financial illiteracy is a huge burden to a nation. As a result, financial illiteracy remains a major drawback for economic growth, development and poverty alleviation efforts.
According to a policy brief by the Organization for Economic Co-operation and Development (OECD), it dissuades the initial overemphasis on financial education for investors and instead underscores the need for individuals and families to embrace financial literacy for prudent financial management.
Testing the theory
I wonder that if we were to do a national survey and asked the questions below, what would be the results of that survey:
- Do you know and understand economic cycles?
- Do you know, understand, and are willing to act on your current financial situation?
- Do you know how to use personal money management concepts, such as how to manage credit, budget, save and invest, establish financial goals and risk management?
- Do you know and understand two fundamental concepts—present value and future value of money.
- Do you know how to choose investments to suit financial goals and life stages?
- Do you know what tax deductions are available to you and how to determine their monetary value?
Each day we make financial decisions consciously or unconsciously, and how we approach those decisions has a tremendous impact on our ability to maintain economic security, which is the endgame. Therefore, it is imperative that we acquire the financial knowledge and skills needed to make informed financial decisions regarding the use of our financial resources.