The FinMark Trust has called on financial service providers and regulators to include financial education as part of their financial inclusion efforts as new evidence shows access to financial services does not necessarily translate to higher levels of financial literacy.
A FinScope survey comprising some 50 000 participants across 11 countries within the Southern African Development Community (SADC), shows that financial literacy – as classified by the number of adults that keep track of their spending and earnings – in South Africa is among the lowest in the region.
“South Africa has got one of the most advanced financial sectors in Africa, and the country has one of the highest levels of financial inclusion in the SADC region. However, due to existence of wider disparity in education, income and employment among different sectors of the population financial literacy is lower than the level of financial inclusion,” explained Ashenafi Fanta, a data analysis and segmentation expert at the FinMark Trust.
He went on to say that financial literacy globally was very low, with only 33% of adults understanding basic financial concepts and 3.5 billion financially illiterate adults in the world compared with 2 billion unbanked adults.
At the same time, the proportion of South Africans who report to have no money to cover basic expenses such as food and clothing is out of kilter with the country’s relatively high per capita income.
“While per capita income of the country is among the top in the region – comparable with Mauritius and Botswana – the percentage of adults who do not have money to cover basic expenses is comparable to poorer countries such as Mozambique and Madagascar. This may be attributed to a high degree of income inequality in the country,” said Fanta.
And while 30% of adults in South Africa do not have enough money to cover their basic expenses, a lack of access to credit sees only 24% of adults borrowing to cover these expenses.
Still, people in South Africa have better access to credit than in a number of neighbouring countries, which is reflected in the “higher tendency among adults of utilising credit for non-developmental purposes”.
“Wider accessibility of credit driven by higher levels of competition among lenders to win customers may result in a lenient credit policy and hence a lower chance of credit being used for developmental purposes,” Fanta said.
Regionally, only 20% of people use credit for developmental or productive purposes such as paying for education, property and equipment or starting businesses, which can help to boost a person’s earnings capacity.
The study confirmed that people who solicit financial advice from professional sources such as banks, financial advisers and even financial media are more likely to use debt for productive purposes.
“This has important implications for encouraging usage of debt for changing people’s income generating capacity by promoting financial literacy in general and debt literacy in particular,” it said.
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