Jaco Prinsloo. Supplied
South Africa’s people face unique financial challenges daily, including high unemployment, extreme poverty and anaemic economic growth. One challenge we can all overcome is taking the first step to financial well-being by seeking to educate ourselves financially.

* Financial illiteracy is expensive. Due to low levels of financial literacy and the complexity of financial products, South Africans need to educate themselves to avoid making poor financial decisions that result in high fees and service costs, investing in inappropriate financial products, losing out on benefits, including tax deductions on retirement fund contributions or reduced interest payments on outstanding loans by paying more than the minimum monthly required amount.

Educate yourself by using free online services, listen to podcasts about personal finances or speak to a financial adviser.

* Income uncertainty. With the high level of unemployment and increasing number of retrenchments in the past few years, South Africans are forced to dip into savings, increase their debt, cancelling medical scheme membership and life cover to cut costs when they lose their income.

Using long-term savings, increasing debt and cancelling risk policies is putting South Africans at physical and financial risk. When things improve and you start earning an income again, you start on the back foot with more debt, no savings and higher risk premiums, which makes it harder to manage finances and achieve investment goals.

The best defence against a loss of income is no debt and a safety net in the form of an emergency fund to replace lost income.

* Low growth leads to high risk. The lack of growth in the economy over the past few years means that low single-digit returns have caused South Africans to lose faith in the financial industry.

Many people approaching retirement have had to downsize their retirement plans, resulting in an increase in the risk investors are willing to take chasing higher returns. Switching to risky assets and chasing higher returns can result in more volatility, uncertainty and the risk of capital loss. This can cause financial plans to fail and reduces the chances of meeting investment goals.

By remaining committed to the investment strategy based on personal investment goals, time horizon and risk profile you can avoid destroying the value of your investments during unfavourable market conditions.

* The cost of family. Many South Africans assume responsibility for family members facing financial difficulties. The country’s low savings rates, under-insurance and high levels of personal debt are a result of individual income earners supporting multiple family members.

By supporting family members, income-earners are undermining their own finances, putting them at risk of becoming financially dependent on others if they lose their income.

Always ensure that your personal finances are taken care of before you help others. If you are unable to help others financially, you can still assist them by motivating, inspiring them and helping them to identify opportunities to help themselves.

Jaco Prinsloo is a Certified Financial Planning professional at Alexander Forbes Financial Planning Consultants.

PERSONAL FINANCE