How young people can improve their finances in 2022

Published Jan 25, 2022


By Martin Hesse

Several studies have shown that the Covid-19 pandemic has caused more financial hardship among millennials than in older generations (even though, ironically, they are less likely to get severely ill or die from the virus). For example, last October’s Alexander Forbes Member Insights Report revealed that young people employed in medium to large companies and belonging to a retirement fund were harder hit financially by the pandemic than their middle-aged colleagues, with higher retrenchment rates and higher levels of financial stress, as measured by their credit scores and their default rates on debt.

But perhaps the pandemic has simply exposed more fundamental problems concerning young people and their money?

The latest Momentum/Unisa Financial Wellness Report, which comes out quarterly, confirms a long-known but often ignored truth: that attitude and education play a huge role in one’s financial success. The report showed that not only are many young South Africans handicapped by having poor levels of financial education, but this is compounded by over-confidence in their ability to handle money.

This may be explained by the Dunning-Kruger effect, a recognised cognitive bias whereby people with a lack of ability or knowledge about a subject overestimate their ability or knowledge. According to Wikipedia it is “based on the idea that poor performers have not yet acquired the ability to distinguish between good and bad performances. They tend to overrate themselves because they do not see the qualitative difference between their performances and the performances of others.”

In the Momentum/Unisa study, a basic financial literacy assessment, based on a five-question questionnaire, revealed a very low average financial literacy score of 36 out of 100 for people aged 18 to 34. However, when the respondents were asked to evaluate their abilities, more than 60% reported that they had satisfactory to excellent financial knowledge and skills (see graph).

This over-confidence, unfortunately, plays into the hands of scamsters, especially online, where young people spend so much of their time. The report states: “The youth segment seems to be quite willing to engage via a digital platform, but they also have a high level of trust in those that they are engaging with. Given their low levels of financial literacy and the high occurrence of financial fraud and phishing, their high levels of trust in digital platforms should be supported with secured and trustworthy digital platforms that provide sound financial education so as to ensure they have the necessary knowledge and skills to avoid becoming victims of financial crimes.”

The study reveals that although young people are experiencing many challenges, the one big advantage they have is the benefit of time. “If they could grasp the benefit of saving consistently (even if it is small amounts) in the right financial products, it could generate positive financial outcomes for them in time through the magic of compound interest,” the report says.

In offering advice to achieve financial success and become financially healthy, the report refers to the well-seasoned but still relevant principles of George S Clason in The Richest Man in Babylon, first published more than 95 years ago in 1926:

• Do not spend more than what you earn – if there is still money left over at the end of the month, invest this to grow your wealth.

• It may take a mindset change to not fall foul of instant gratification and spend on wants rather than needs or not saving before acquiring expensive items. Make sure you know where every cent goes.

• Ensure that your savings are invested in the appropriate financial products that will deliver a good return. This will provide you access to the eighth wonder of the world, compound interest. Let your money work for you and not you for your money. Start as young as possible to save, even a small amount a month has the potential to become much more over time.

• Take note of the old saying, “if something is too good to be true, then it probably is”. Be careful about who you take financial advice from and take ownership of your financial journey by empowering yourself with knowledge and skills to safely navigate your finances during good and bad times. Ensure you have informed conversations with those you consult (such as a qualified financial adviser).

• In a low-interest-rate environment, ensure that owning your own home is one of your goals and start saving for a deposit as soon as possible.

• You are never too young to start saving for your retirement. There are a variety of products that allow for a small monthly amount or an annual lump sum investment, use your bonus wisely and invest in your retirement before you spend on the rest of your wants. Also remember that you are your biggest asset – ensure that you have income protection, disability and life cover when needed, especially when you have a family that is financially dependent on you.

• Invest in yourself. It doesn’t have to be a formal qualification, make use of free courses available to equip you with the necessary skills required for the 21st century. Become a life-long learner to ensure you make yourself more appointable than the person next to you.


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