A webinar by the Financial Sector Conduct Authority (FSCA) this week revealed a staggering, but not altogether surprising, statistic: divisional executive of regulatory policy Caroline da Silva said a survey the FSCA had commissioned indicated – and the figures were still to be finalised – that more than one in four South Africans (26%) with credit life cover did not know they had this cover. About five million people who were sold a credit life policy when they bought something on credit didn’t know they owned such a policy.
Although this statistic is an indictment of the credit life industry, which appears to me to be surreptitiously selling insurance with the view that the less people know, the less they’re likely to claim, it also points to the ongoing dearth of basic financial knowledge among consumers.
While I’m not sure whether South Africans are worse off in this regard than citizens of other emerging-market economies (or even some developed economies, for that matter), I am convinced that financial education is key to a happier, more prosperous and more productive society.
At Personal Finance, a pioneer in this space, our prime aim is to educate readers about financial products and keep them informed of industry developments.
Various publications and organisations offering financial education in one form or another have popped up in the past decade or so. Initiatives range from bloggers offering tips on investing to large financial corporations investing heavily in financial education programmes. The FSCA itself has a financial education arm, which has grown in strength in recent years in line with the authority’s education mandate.
The information out there is, unfortunately, of varying quality. Worst of all is the “fake news”, whereby consumers are lured into investing or buying products on the basis of outright disinformation – for example, forex trading websites that provide “secret” techniques or formulas for beating the markets. Then there is information that is simply wrong – the author does not have his or her facts straight, but with no devious intent. You also need to be aware of product providers that use financial education primarily as a marketing tool, directing you towards their own products.
Despite this, I believe there is a genuine shift in the financial services industry towards improving financial literacy. It’s just a pity that efforts are not more co-ordinated.
Making a difference
Hayley Perry is the co-founder of The Money School, the financial education provider for The Truth About Money, launched by life insurer 1Life in 2014. The Truth About Money’s Financial Independence course, which is available free on application, has been completed by more than 53 000 South Africans.
Perry says the course is available both online and, for people without access to the internet at home, at 44 Boston City campuses nationwide. At the end of the course, students receive a certificate.
She says the students are asked a series of questions before and after they complete the course, and the results make interesting reading.
Financial Independence course: answers in the affirmative by participants
“It’s heartwarming to see the changes that can happen when people get a financial education: we see remarkable changes in behaviour and receive some amazing testimonials,” Perry says.
Perry believes financial education should start at an early age, and that parents are in the best position to begin this education. However, there is often a reticence on their part because of money issues they themselves may have.
“I think a lot of parents are ashamed of their own money management skills, and instead of including financial education in the normal everyday raising of their children, they say it needs to happen formally [at school], and this could not be further from the truth.
“I believe kids should start with something as simple as a three-jar system, with the jars labelled ‘Spend’, ‘Save’ and ‘Share’. Whether they earn money by doing chores or receiving an allowance, if they learn early how to allocate into the different jars, and you give them lessons around each of those concepts, there is an enormous amount of learning that can happen. The idea is that you want them to make as many mistakes as possible when they are younger, while they have you to guide them.”
Perry says knowledge breeds confidence. If parents educate themselves about the concepts that are important, and start doing things differently, they will have the confidence to be able to raise topics about money in the family home.
The concepts themselves are not tricky to understand, and once you have grasped the basics regarding the day-to-day management of money, you can turn your attention to longer-term planning and your financial heritage.
“For a lot of people, [the basics] may be in place already. And then you need to think about what happens when you’re no longer here: what happens to your assets or, even worse, when you’ve got debt? Putting a will in place is a step that is relatively simple, but can have a massive and far-reaching impact on a family, particularly if it’s not there,” she says.
*By Martin Hesse