South Africans’ financial literacy remains low
The average gender gap in financial literacy is at five percentage points, but in South Africa, financial literacy is equally low for women and men.
How much do South Africans really know about the four financial decision-making concepts: knowledge of interest rates, interest compounding, inflation and risk diversification?
These are complicated terms. According to Momentum Investo, people are considered financially literate when they can correctly answer questions on at least three of the four concepts.
Worldwide and in developing countries the average gender gap in financial literacy is at five percentage points, but in South Africa, financial literacy is equally low for women and men, according to an S&P survey.
Surveys to gauge financial literacy levels
South Africa has done its own financial literacy surveys, using the same principles as the S&P survey.
The Financial Sector Control Authority (FSCA) asked the Human Sciences Research Council (HSRC) to do surveys in 2011, 2012, 2013, 2015 and 2017. The overall financial literacy recorded in the 2018 report was 54%.
For the latest survey, 3 067 people were interviewed. Most respondents could do basic arithmetic. Only 16% understood the concept of inflation, 46% could answer a basic interest question, and 35% could answer a compound interest question.
Most people are aware of a pension fund and informal savings club, but less than three out of five have heard of an education contract. Less than half are familiar with unit trusts, provident funds or investment contracts. Only a fifth of the population held any of the products listed.
The groups with the highest financial literacy score were the tertiary educated, the wealthy, those with full-time jobs and people who reside in formal urban areas.
The younger counterparts
Young people were found to have relatively high levels of knowledge and understanding. However, their level of financial literacy was low.
The yearly Momentum/Unisa Science of Success Insights report has similar findings. It says that the youth are over-confident regarding their financial abilities but scored a very low average financial literacy of 36 out of 100.
For the past 10 years, the report has aimed to give South Africans tools to help them understand and manage their financial health. According to the report, many South Africans are financially unwell because of poor decisions and/or financial illiteracy.
It also says that improving financial literacy is a factor within the control of households. The report encourages households to follow education programmes to become financially capable and embrace positive financial behaviour.
Prof Bernadene De Clercq, one of the compilers of the Momentum/Unisa report, says: “As is evident from the available research, the financial literacy levels of the country are not where we want them to be”.
She says to improve them will require a collaborative effort from individuals, financial institutions, and government. “Collectively we can address this challenge – we all have work to do,” she says.
Investo and FinEazy reach out to schools
Momentum’s Investo, in partnership with FinEazy, has embarked on an initiative to help education the masses from a young age, to increase the standards of financial literacy in the country.
The initiative works in two parts: the Future Finance Friends part, which is aimed at high school learners from Grade 9 to 12. Using avatars, the participants register on a chatbot to learn basic financial literacy. The curriculum has 25 topics.
There is also the Momentum Money Shift part. This is aimed at young adults at universities, colleges, in work readiness programmes and on job sites. The course has 50 topics.
Recently the Momentum Metropolitan Foundation board approved a new consumer financial education strategy.
“We are excited to start with the first phase of our project where we discuss the curriculum development and content design,” says Claire.
As a member of the Association for Savings and Investment South Africa (ASISA) Standing Committee on Transformation, Skills development and Education, they also collaborate through two working groups to encourage a more focused approach in the financial services sector regarding financial education.