WORDS ON WEALTH
Financial education is a topic close to my heart; and it is at the heart of Personal Finance. People need to become better educated about money - for their benefit, but also for the benefit of the economy. The extremely high debt and low savings levels of South Africans may be directly linked to the country’s frighteningly low level of financial literacy.
Recently, I attended a two-day conference in Cape Town on financial education, co-hosted by the Financial Sector Conduct Authority (FSCA) and the Organisation for Economic Co-operation and Development (OECD). Experts from around the world told us about efforts in their countries to educate people about money and financial products and there were some inspiring stories, with speakers sharing tips on what worked for them and what didn’t.
Education and finance authorities in Russia, Brazil, Australia and the Netherlands, among other countries, are seeing positive results from interventions at primary and secondary school level, employee and consumer education programmes, and programmes introducing entrepreneurs to the basics of accounting. Here in South Africa, the FSCA and the Association for Savings and Investment South Africa (Asisa) Foundation are leading financial literacy initiatives in underprivileged communities, among other laudable efforts. (Quite to what extent our government departments of basic and higher education are involved in financial education, I haven’t been able to fully ascertain - it seems not nearly enough.)
Most people would agree that the aim of financial education is to improve financial outcomes for consumers - in other words, it should lead to behavioural change, with people making wiser choices about what they do with their money.
External factors influence our financial decisions: we live in a society in which instant gratification is celebrated and success is measured by the size of the SUV you drive and the designer labels on your clothes. There is an ongoing, pervasive distrust of established financial institutions. And a proliferation of financial products has brought wider choice but at the same time greater complexity in the financial landscape.
Factual knowledge is a given - the more you know, the more informed your decisions will be. But knowledge alone is not enough. For example, most smokers know of the health dangers that smoking poses, yet they continue to do what is bad for them. Some would argue that acquired skills are more important than knowledge. One intriguing way of teaching these is through educational video games (see “Playing games”).
Apart from failing to save, taking on debt and making poor spending decisions, consumers who are not financially savvy are also highly vulnerable to scams. At the conference, Caroline da Silva, the FSCA’s divisional executive for regulatory policy, said there has been a flurry of Ponzi schemes, and consumers have also been lured to websites offering high-risk investments in derivatives and binary options. While the regulator has a role to shut down illegal operations and warn consumers about them, it cannot fully protect all consumers all the time; they must learn to protect themselves through education..
Da Silva said the FSCA is not a consumer watchdog body. However, under its new mandate under the Financial Sector Regulation Act, it can compel financial institutions to provide consumer education, which is perhaps a world first. She warned, however, that there is still some confusion at corporate level between marketing and education: education should not be product directed with the aim of making a sale.
Da Silva reiterated the importance of firms recognising that educating consumers was not contrary to their business. “Putting consumers at the heart of your business is a good business strategy,” she said.
A big positive I took from the conference is that digital technology is hugely enabling in educating consumers. Millennials tend to be better informed than their parents on financial matters through the power of the smartphone. And fintech start-ups are providing simple, intuitive insurance and investment solutions that have a competitive advantage over established providers whose offerings have only become more complex.
Dr Carmela Aprea from the University of Mannheim discussed child learning programmes using video games. Her team developed an adventure game, Finance Mission Heroes, in which the heroes must fight criminals who have stolen savings from a bank. The players decide on their clothing and weapons, considering the costs and benefits of each item. They are also tempted to buy impressive but unnecessary items. They also have to decide on time allocation for various activities, and on a crime-fighting strategy: they can fight the big bosses and earn more money, but risk massive damage to their equipment, or fight small robots and earn less, but incurring less damage. The players see what they have spent and earned, and see where they can improve. Failure “is an important part of game”.
Created in 2008, the OECD International Network on Financial Education promotes and facilitates international co-operation between policy makers and other stakeholders on financial education issues worldwide. More than 260 public institutions from 119 countries have joined the network.
FSCA CONSUMER EDUCATION
The Consumer Education Department of the FSCA plays an important role in responding to the specific issues and areas of risk facing South African consumers. The CED has provided consumer financial education in South Africa for more than a decade, in accordance with the mandate as specified in the Financial Services Board Act, as amended in the Financial Services Laws General Amendments Act, to “provide, promote or otherwise support financial education, awareness and confidence regarding financial products, institutions and services.’’
Martin Hesse is the Editor of Personal Finance.