How to break free from poor financial habits
JOHANNESBURG – At least once a year, as many as 41 percent of South African households do not make it, financially, to month end. Many others barely make it, and too few are saving for the future.
Lizl Budhram from Old Mutual Personal Finance says data from the 2018 Old Mutual Savings and Investment Monitor shows that living from pay-cheque to pay-cheque is an unhealthy cycle that requires immediate redress.
“Historically, many households had to make ends meet in a low-income environment that made saving or investing money virtually impossible,” Budhram explains. Compounding the problem has been the fact that many people were denied access to formal financial services, including basic financial education, and other saving and investment tools.
Budhram said that this contributed to a financial culture that normalised spending all monthly earnings. “We do as we see, and not as we’re told,” she adds, pointing to a survey conducted by the National Foundation of Credit Counseling in America, which found that the majority of respondents learnt most of what they know about personal finance from their parents.
“Children pick up money habits from what they see in their homes,” she says. “People who grew up in households where there was responsible financial behaviour are positively influenced and more likely to be responsible with money.”
Although rising prices, high personal debt, insufficient earnings, high unemployment and the need to take care of family members makes getting through the month increasingly challenging, Budhram believes it is still possible to reinvent Africa’s savings culture.
“It is critical particularly for younger generations to recognise that they do not need to fall into the financial traps that their parents found themselves in. Today, young people have far greater access to economic participation and opportunities, their earning potential is higher and, possibly most importantly, they have greater access to financial education, solutions and services.”
Budhram encourages young professionals to avoid procrastinating when it comes to their finances and to prioritise financial freedom. This may require a mind shift when it comes to their approach to money.
“The time is now to start a new financial culture: get the right advice, make savings a priority and commit to a clear financial plan that will help you reach your financial goals.”
By doing this, she says, the next generation will contribute to a stronger savings culture in South Africa, and start a new tradition of healthy financial habits in their own families.
Budhram adds that getting rid of the desire to “keep up with the Khumalos, the Karims and the Kardashians” is also an important step to take. She encourages young people to constantly evaluate their financial situation in three ways:
- by partnering with a financial adviser who can offer guidance on financial decisions for long-term wealth creation
- by tracking daily spending through the use of clever technology such as budgeting apps (like 22seven)
- by dedicating time to upskilling financial literacy levels through online education courses such as those offered through Old Mutual’sMoneyversity platform.
“To change our money habits, we need to stop, reflect and make rational decisions that can pave the way for future generations to enjoy financial freedom – and stop the pattern of living from paycheque to paycheque. Now is the best time to start,” Budhram said.