JOHANNESBURG - The fact that more than 70 percent of South African households don't budget, conduct little debt and financial planning and generally have low financial literacy is a good time to take a look at financial wellness.

According to Mellony Ramalho, African Bank’s group executive for sales and branch network, investing is not just for the rich, nor are large amounts needed to start investing. “What you do need is to understand some basic concepts and principles relating to investing,” said Ramalho.

She said the latest research by Momentum and Unisa showed that 73.5percent of South African households were financially unwell and generally did not budget, conduct very little debt and financial planning, and generally had very low financial literacy and capability levels.

Ramalho said the key to investing was finding the right product to meet one's objectives, such as how much one wants to invest, the amount of investment wanted, the returns expected and the time period of the investment.

She said parents of small children, for example, could consider a tax-free investment account, which is aimed at saving and growing the investment for educational purposes.

“Adults that open this investment account for themselves often use is as an additional retirement savings tool. The great thing about this kind of account is that you are also now able to transfer your tax-free investments from one institution to another. This was announced by the National Treasury and took effect on March 1, 2018,” said Ramalho.

She said notice accounts was another example that provided a great method for saving on a shorter-term basis, such as for holidays, unexpected expenses or to keep funds aside for Christmas or when children go back to school.

“Fixed deposit accounts provide a highly competitive interest rate for customers who invest a lump sum. Some customers use the interest payment as income and choose to have the interest paid out according to their needs whether it be monthly, semi-annually or annually,” she said.

Ramalho said investing a lump sum of R200000 for example, at an interest rate of 10.5percent per annum (nominal annual compounded monthly), provided a guaranteed return of R137320.60 over 60 months.

“The interest rate earned is based on the selected interest pay-out frequency. If you choose a monthly interest pay-out you will earn 10.5percent interest per annum. If you choose to leave your interest earned in the investment account until expiry, you will earn a higher interest rate, this is called compound interest. You earn compound interest (interest on interest) throughout the investment term if you choose to leave the interest earned in the investment account. That way you will earn maximum growth on your investment,” she said.

PERSONAL FINANCE