WORDS ON WEALTH
By Martin Hesse
Last week, the Financial Sector Conduct Authority (FSCA) released its report on the 2020 Baseline Survey on Financial Literacy in South Africa and the findings are disappointing, to say the least. The 2020 survey is the latest in a series of surveys: previous ones were undertaken in 2011/12, 2013, 2015, and 2017.
The figures show that, over the last decade, the financial literacy of South Africans has not improved. In fact, from low levels to begin with, it has declined. This despite the government putting in place a National Consumer Financial Education Strategy and drafting a National Policy on Financial Education back in 2013, which these surveys are meant to inform.
The surveys are conducted on behalf of the FSCA by the Human Sciences Research Council (HSRC). The sample size for the latest one was 2 693 (adults 16 years and older), with national representation. Face-to-face research interviews started in February 2020. They were stopped during the initial Covid-10 lockdowns, but resumed in November 2020.
The definition of financial literacy on which the surveys are based is fairly broad – it includes people’s attitudes around and management of money in the home. However, here I focus on financial knowledge, because knowledge informs attitudes and behaviour. Without a knowledge of the basics of how money works, how can one expect people to manage it properly?
Decline in knowledge
As one would have expected in the midst of a pandemic and economic meltdown, the part of the 2020 survey dealing with money management showed a sharp decline in behaviour. However, the part dealing with financial knowledge also showed a decline, which is less explainable.
Comparing the surveys over the decade, knowledge appeared to be improving up until the 2015 survey, and then dropped off in 2017 and 2020, in most cases falling below the 2012 metrics. Between 2012 and 2020:
- Knowledge/awareness of different bank and savings accounts dropped across 10 out of 11 categories.
- Knowledge of retirement savings vehicles (retirement annuities, provident and pension funds) dropped by 7% across categories.
- Knowledge of investment products dropped by between 5% and 9% in all four categories.
- Knowledge of different types of insurance fell across all nine categories by an average of 7%.
Regarding financial concepts such as interest and inflation, knowledge has dropped quite alarmingly (see table). The only category showing some improvement, while remaining concerningly low, is knowledge of inflation rates.
Financial literacy also involves knowing about financial risks. In the 2020 survey, knowledge of pyramid schemes was lowest (at between 25% and 30%) among retired people, people living in rural areas and people with only primary or no formal schooling, but even among employed urban people with a matric it was only about 45%.
Financial education programmes
The FSCA has been involved in a financial education programme for a number of years, and the big players in the financial services industry, along with industry body, the Association for Savings and Investment South Africa, also have financial education programmes.
Mainly aimed at disadvantaged communities, the people involved in these various programmes are doing sterling work, often in creative and innovative ways.
But it is not enough. Financial education should not solely be the responsibility of National Treasury. We need financial literacy taught in schools from primary school level. The Department of Basic Education needs to come to the party if we are to improve the financial literacy – and thereby the financial health – of South Africa consumers.
Claire Klassen, consumer financial education specialist at Momentum Metropolitan, which has various financial education and entrepreneurship programmes on the go, says financial education is a crucial foundation for raising financial literacy – and it should be considered as important as basic literacy, the ability to read and write.
“In South Africa, the lack of financial literacy among young people and students is a great concern and needs immediate attention. As a developing country, South Africa needs to design and deliver consumer financial education programmes that support the economic opportunities inherent in entrepreneurship and we need policymakers to support this, by removing unnecessary red tape and barriers to business.
“The basic education system can be transformational by putting in place the necessary tools and mechanisms to teach learners financial literacy. There is ample evidence of the impact of financial literacy on people’s decisions and financial behaviours. For example, financial literacy has been proven to affect both saving and investment behaviour and debt management and borrowing practices,” Klassen says.
PERSONAL FINANCE