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Your financial heritage, which is your parents’ relationship, experience, and behaviour as far as money matters go, can influence how we view and manage our own finances, and this could either be an obstacle, or a major help.
However, recognising the ‘inherited’ traits that hinder and hold us back financially is key to levelling our country’s economic playing field, which is where financial literacy can assist us in growing into smart, financially-free adults.
“Perhaps our parents struggled to make ends meet and found themselves turning to credit to get by. This could lead to us viewing debt as a necessary part of life, not realising that we have the power to take control of our spending and lending,” says Naledi Totana, compliance officer at local debt advisory firm, National Debt Advisers (NDA).
According to the Financial Services Conduct Authority’s (FSCA) Financial Sector Outlook Study 2022, more than 50% of South Africa’s credit-active consumers are over-indebted and this number continues to climb, thanks to the economic toll claimed by the pandemic.
The report found that between 2015 and 2020 the number of credit-active consumers with an impairment record fluctuated between 38% and 48%.
“It is never too late to change our behaviour and set ourselves on the path to live a comfortable life. It is also our responsibility to show sound financial behaviour and instil positive habits in our children to enable them to build wealth and not be plagued by financial difficulty.”
Totana says financial literacy plays a key role in helping the South African economy to recover and flourish in the years to come, leaving a fruitful heritage for generations to follow.
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Our parents may not have been financially savvy, but we do not have to accept this as our lot in life, she says.
“Taking control of our money now can make the world of difference to our future financial wellbeing and that of our children. It is important that we take the time to understand our finances and invest in that which will help safeguard our future, such as insurance and retirement savings.”
She also urges consumers to take the time to teach their children basic financial concepts, such as saving, budgeting and credit.
“Before they can learn good financial habits they first need to understand the value of money and why it should be handled with care.”
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Your children not only listen to what you say, they see what you do and therefore, if you want them to practice good money habits, you must set the example.
“Let them sit with you when you draw up a simple household budget so that you can teach them the importance of not letting their expenditure exceed their earnings.”
Help them to identify the difference between a luxury and a necessity when you go grocery shopping. In addition, you can show them the importance of saving from an early age through paying them a small allowance, giving them a piggy bank or opening a bank account for them, she suggests.
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Totana says maybe our parents relied too much on credit or occasionally turned to loan sharks to make ends meet, but there is no need for us to perpetuate this legacy.
“It is important for us to first understand the difference between good and bad debt, before we can pass this knowledge on to the generations that follow.”
She explains good debt has the potential of creating additional income streams or building our wealth, and could include investing in a home, starting a business, or spending on a child’s education. Bad debt usually refers to that which depreciates in value, draining your income through steep debt servicing costs.
“Bear in mind that while debt can be classified as ‘good’ or ‘bad’ is down to affordability. Yes, a house is an investment, but if you cannot comfortably afford it, it might cause you severe financial stress.”