South Africa’s Financial Education Strategy unpacked at International Youth Finance Summit
South Africa is one of the leading countries in the global movement to improve consumer financial literacy with a bold strategy to embed financial education into the school curriculum and ensure that adults and the elderly are better empowered to escape financial scams, debt traps and overpriced products.
Following Finance Minister Pravin Gordhan’s official launch of the National Consumer Education Strategy via Skype from Cape Town, National Treasury Chief Director of Financial Sector Development in the Financial Sector Policy Unit Ingrid Goodspeed unpacked the strategy at the first International Child and Youth Finance Summit in South Africa in Durban last week.
The summit was held to coincide with Child and Youth Finance International’s Global Money Week, which is celebrated from 10 – 17 March.
Delegates included local and international policy makers from government, the financial sector, academic institutions, NGOs and regulators as well as learners from schools and tertiary institutions from KwaZulu-Natal, Botswana, Swaziland, Lesotho and Namibia.
The purpose of the Summit was, among others, to explore the drafting of a child and youth finance strategy, gathering the views of young people and policy makers. The child and youth finance strategy would be aligned with the National Consumer Financial Education Strategy that Goodspeed unpacked at the Summit.
The National Consumer Financial Education Strategy was formulated by the National Consumer Financial Education Committee comprising stakeholders representing the financial sector associations, regulators, NGOs, government departments and the KwaZulu-Natal (KZN) Provincial Treasury.
“The current financial sector has increasingly complex product offerings. Products are often not easy to understand. Pricing is sometimes opaque and the marketing of products is not always as we want it to be so there are a lot of areas we need to address,” Goodspeed said.
“In terms of financial literacy there are a number of pieces of legislation that do address financial literacy but the initiatives are fragmented and not focusing on where the programmes are needed most.,” she said.
Goodspeed said policy informing the strategy rested on four pillars:
- effective consumer protection and market conduct regulation.You cannot rely solely on financially literacy to fully protect the consumer, you also need to have good legislation and regulators in place to make sure businesses are behaving properly and treating consumers fairly,”
- a common focus and direction for consumer financial education initiatives;
- a multi-stakeholder approach to ensure the active involvement and cooperation of all: government, schools, financial institutions, industry associations, employers, trade unions, community organisations, NGOs; and
- a national consumer financial education strategy with risk-based priorities is central to providing consumers with choices, informing them of their rights, instilling in them values and confidence that empower them to make sound financial decisions, build assets and invest in the future.
Sharing the South African financial literacy baseline study, commissioned by the Financial Services Board in 2011, Goodspeed explained that the study determined the levels of financial literacy among South Africans in four areas, i.e. financial budgeting and control; financial planning; choosing financial products; and knowledge and understanding. The study had revealed the literacy levels with an overall index of 54 made up as follows:
- South Africans scored 58 for financial budgeting and control, which includes basics such as knowing the difference between wants and needs.
- They scored 53 for financial planning which includes knowing about planning for the future, ensuring retirement savings were in place and saving for school fees
- When it came to choosing financial products to meet their needs South Africans scored 45. This includes understanding that the appropriate product to fund the purchase of a home is not a 30-day loan from a payday lender.
- They scored 56 for knowledge and understanding of basic financial terms and tools such as how compound interest works for a saver and against a borrower.
Goodspeed said the vision of the national strategy was to improve financial literacy among all people. “We want our young people financially literate, responsible and aware and we want them to desire to improve their lives and their communities. We want grown ups to be financially adept so they are really capable of managing their finances and don’t get bogged down in debt traps, so they can plan, invest and create wealth,” she said. It is also important to ensure that the elderly are financially secure, not victims of scams and fraud or chasing elusive “quick wins”.“We find that the elderly think they do not have sufficient funds for retirement and get drawn in scams such as pyramid schemes to try and bolster their retirement funding,” Goodspeed said.
Goodspeed said the mission of the national strategy was to make sure that “all South Africans, particularly those that are vulnerable, are empowered to participate knowledgeably and confidently in the financial marketplace and to manage their financial affairs, deal with their day to day financial decisions and make good choices about allocating their incomes from school-going age, during working age and through to retirement.”
“The national strategy sets strong numerical objectives for what the level of financial literacy should be in five and 10 years time. For example in five years we want to see financial control move up to 65 from its current level of 58,” Goodspeed said.
The national strategy prioritized those dimensions within specific targets markets for focused consumer financial education. For example on average 16 to 19 years olds are the highest priority in all the dimensions namely financial control, financial planning, product choice and financial knowledge, while 40 to 59 year old South African are a relatively low priority in terms of financial education.The national strategy also set out those compentencies within each dimension that consumers should demonstrate.
Key to the implementation of the national strategy is that each stakeholder plan, fund, implement, monitor and evaluate consumer financial education programmes and initiatives in line with the priorities defined by the national strategy.
Goodspeed said a good time for consumers to be educated was at the point of making a financial decision. “If you are going to buy a house and you want to get a mortgage that is the time to teach people about a mortgage, the impact on their cash flow, whether their budget can cope with the mortgage payments and what provisions are they going to make if there should be sickness or death,” she said.“Because the baseline study only addresses South Africans 16 years and older, for children younger than 16 we should embed these four dimensions and the disciplines and principles that go with them into the school curriculum so they learn from the moment they start school. The national committee is working on how this can be done.”
The committee is in the process of setting up a central database of all the financial education initiatives around the country as well as a financial wellness call centre to assist consumers with their financial problems and questions. The next FSB baseline study to measure the impact of the strategy implementation will take place in 2016.
For more information contact:
Mr Ntokozo Maphisa
Cell: 0827730937
E-mail: ntokozo.maphisa@gmail.com or
Christi Naudé
E-mail: christi.naude@kzntreasury.gov.za
