The limited financial literacy levels of South Africans has been cited as one of the factors exposing them to predatory lending, financial scams and acquiring inappropriate financial products or services.
This is according to Finance Minister Enoch Godongwana, who said the 2020 Financial Sector Conduct Authority Baseline survey found that South Africans have an average financial literacy score of 52 out of 100.
“This suggests South African consumers have limited knowledge to understand financial sector products or services.
“This exposes South Africans to predatory lending, financial scams, and acquiring inappropriate financial products or services with inadequate disclosures.
“As a result, there is a continued need for comprehensive financial consumer education programmes, complemented with a range of consumer protection measures,” Godongwana said.
The minister was replying to parliamentary questions from EFF MP Eugene Mthethwa who wanted to know the loopholes his department had identified that allowed bogus financial services to exist and medical insurance companies to swindle the vulnerable.
Godongwana said the National Treasury has not been made aware of bogus medical insurance companies.
Several loopholes have been identified that disadvantaged vulnerable people, including financial literacy, he said.
The rapid pace of digitalisation has encouraged development of innovative financial sector products and services, creating new risks for consumers.
“Challenges are more pronounced for consumers with low financial and digital literacy. “
Godongwana said according to the SA Banking Risk Information Centre annual crime statistics for 2022 , South Africa faced challenges related to an array of financial and banking crimes spanning contact crimes, digital offences, application fraud, and card fraud.
“Furthermore, South Africans continue to fall prey to get-rich-quick schemes. Scammers are increasingly exploiting conventional and trusted systems, such as stokvels.
Scammers may, for instance, present themselves as legitimate stokvels, investment schemes, or property stokvels when, in fact, they are Ponzi or pyramid schemes.”
He added that the pursuit of unreasonably high returns also made uninformed consumers easy targets for fraudulent investments.
“With the emergence of crypto assets, Ponzi schemes that are crypto based have become more common.
There is a need for greater vigilance and caution when engaging with this sector of the financial system.”
National Treasury, through the National Consumer Financial Education Committee, has annually been running a financial education awareness campaign since 2018.
A variety of topics, including scam awareness, were addressed through community radio station interviews, in-person activations and social media channels.
“The Financial Sector Conduct Authority (FSCA) also regularly issues warnings to the public on fraudulent companies and individuals purporting to be offering legitimate financial services.
“Members of the public are urged to be cautious and verify the authenticity and registration status of service providers, by contacting the FSCA through mechanisms the FSCA has made available on its website.”