A considerable portion of South African adults may not be adequately equipped to make key financial decisions, a new financial literacy study has found.
While there was broad evidence that South Africans had a positive attitude towards saving, personal and macroeconomic realities often hindered their savings behaviour, Benjamin Roberts, senior research manager at the Human Sciences Research Council (HSRC), said.
Roberts was speaking at the release of key highlights from the financial literacy section of the 2015 South African Social Attitudes Survey at the Sowetan Dialogues. Conducted by the HSRC in November and December 2015 on behalf of the Financial Service Board (FSB), just shy of 3 000 respondents were interviewed during the latest survey round. The research was designed to be nationally representative of South Africans age 16 years and older.
According to the study, the level of financial literacy among adult South Africans tends to be in the low to moderate range on average, with a score of 55 out of 100. The figure has remained fairly stable over time when compared to past iterations of the research (see table below).
Financial literacy scores (mean scores on a 0-100 scale)
|Overall financial literacy||54||54||52||55|
Fifty-eight percent of respondents indicated that they had a household budget, while 81% said they had a considered approach to spending. Yet only 37% always paid their bills on time, suggesting that there may be a difference between respondents’ attitudes toward financial control and their actions.
Alarmingly, 69% of respondents had no rainy day savings or emergency funds. Half were not actively saving and 40% had no retirement plan.
According to the FSB, low levels of financial literacy negatively affect consumers in numerous ways, including the incapability to assess the suitability of financial products for their personal needs.
“Financial illiteracy also undermines saving and makes individuals more vulnerable to predatory lending and financial scams. The ability of an individual to start a business can be affected by her or his financial knowledge, capability and understanding; therefore financial illiteracy undermines entrepreneurship in South Africa.
“The country faces considerable challenges of overcoming unemployment, poverty and inequality during a prolonged period of global economic uncertainty and slow growth. Such challenges are compounded by low levels of financial literacy amongst the public.”
The study’s findings also underline that educated South Africans and those in higher income groups are far more likely to demonstrate sound financial knowledge and behaviour.
Caroline da Silva, deputy executive officer for Fais at the FSB, said the research once again sent a message that inequality was one of the biggest single risks facing South Africa and that the country needed to focus on transformation.
“We need to focus on upliftment and the important role that consumer education can play in it as a part of a holistic plan to drive transformation.”
Mpho Ramapala, manager for education and communication at the National Credit Regulator, said judging by the number of complaints they received, the most vulnerable group of consumers were generally at the lower end of the market.
“It is mainly because they don’t know their basics rights when it comes to credit.”
Pensioners were often targeted by informal lenders who kept their Sassa cards, ID documents and bankcards to collect payments before they received their grants.
Nigel Willmott, certified financial planner and member of the Financial Planning Institute of Southern Africa, said a lot of the financial education interventions by the financial services industry were fairly limited and unsustainable.
In some instances, there were also questions about the motive for the programme, which might be an effort to collect cell phone numbers and e-mail addresses to sell products.
Financial education should be focused on coaching and education, he said.
Da Silva said under the new Twin Peaks model of financial sector regulation, the FSB (Financial Sector Conduct Authority) could play a stronger role in coordinating financial services spend and direction in consumer education but also assist service providers in determining best practice, which would allow for a more coordinated financial education effort where the industry could get bigger bang for its buck.
In the past, the FSB mainly undertook financial education efforts of its own accord.
Seipati Nekhondela, director of banking development in the tax and financial sector policy unit at National Treasury, said financial literacy was a complement to both consumer protection and financial inclusion.
She stressed that financial education should empower consumers to make decisions tailored to their personal circumstances.