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File Image: IOL

Closing the financial literacy gap in South Africa

By Time of article published Aug 18, 2021

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By Farzana Botha

As South Africans, our experience with money is probably as diverse as our population. There are significant gaps in understanding basic financial concepts. This means that a one-size-fits-all approach to financial education is unlikely to deliver results. While access to financial infrastructure is one way to broaden socio-economic inclusion, another is addressing the knowledge gap in ways that actually work.

This needs to be a nuanced approach that’s sensitive, sustainable, and accessible. It needs to empower people to live with confidence, go after their goals and believe they can build a better life. Ideally, it should start in childhood, but be an ongoing journey.

A bleak picture

Poor financial literacy continues to hamper South Africans’ ability to save. The Human Sciences Research Council’s 2017 report states 48% of South Africans don’t manage to save at all, with 42% reporting no long-term savings of any kind.

The financial literacy deficit is also having an impact on people’s mental wellbeing, especially with the added stresses of the pandemic. The US National Financial Capability Study found that financial stress and anxiety correlate with low levels of financial literacy. This is very concerning in a South African context.

A further alarming finding is that of the Organisation for Economic Co-operation and Development, which ranked South Africa the worst of 30 countries for financial competency in 2018. And the South African Financial Sector Conduct Authority found few adults could answer an arithmetically based question on inflation correctly. Just a third could perform a simple compounding calculation. These worrying realities need to be addressed urgently and head-on.

Turning it around

Not knowing means not planning, which means missing the goal in almost every situation. For example, how can you save for retirement properly, if you don’t know how much you need? And if you don’t fully understand how inflation and interest rates will impact your contributions over time? That’s where tools like retirement planning calculators and Sanlam’s Goal Manager have an important role to play.

A solid financial understanding will help people to:

  1. Actively minimise debt to free up disposable income over time. According to, the South African debt to income ratio, in 2020, was 77%, which is up from 72% in 2019. This indicates a steady rise in consumer debt. Awareness of income – and having what can be likened to a personal balance sheet – will help people manage debt in relation to income.
  2. Free up disposable income to save and invest for short-, medium- and long-term goals. Starting small, with the creation of an emergency fund, for example, can minimise one’s risk of future debt and help lead to long-term financial freedom.
  • 2021 Deloitte research shows that nearly 70% of South Africans were spending all their income – or more income than they earned – every month. Financial understanding also protects people from falling prey to illegitimate financial dealings in desperate times. Moreover, unregistered financial outfits abound and are masterful at misleading people into investing in schemes that can result in permanent financial loss.
  • Gain confidence. This comes through knowledge and becoming competent or proficient in something. Having a solid financial understanding empowers people to set and actively pursue goals.

Self-education is the first step. Then it’s imperative to share knowledge with others – especially children. From as early as childhood or adolescence, learning how to manage money is a vital life skill. Games like monopoly may help to teach children how to manage cash flow and debt as well as the financial consequences of certain actions. Earning money through chores and learning how to budget are good ways to start teaching children to manage money.

My suggestions for those seeking to upskill themselves in financial education include:

  • Get a grip on your personal finances. Understand the current state of your financial position by assessing your income, expenses and knowing how much debt you have and what you are paying to service that debt or liability.
  • Take control and personal responsibility for upskilling yourself on the basic principles of finances. This includes self-reading, research and asking questions.
  • Speak to professionals. This includes professionals in taxes, estate planning and financial planning that can offer insurance solutions that meet various needs and shortfalls.

What the financial services industry needs to do

Registered financial institutions and regulatory bodies all have a responsibility to their consumers and the communities they serve to partner with people on this journey to financial literacy. Those with knowledge have a responsibility to share that knowledge.

It will take collective will to really move the needle and to change people’s lives. The sooner we throw our weight behind meaningful financial literacy initiatives, the sooner we’ll make a difference.

Farzana Botha is a segment solutions manager at Sanlam Savings


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