Financial education is important, particularly in this economic reality, as it assists people going through tough times and empowers them to make informed decisions in safeguarding their financial well-being, according to Unathi Kamlana, the commissioner of the Financial Sector Conduct Authority (FSCA).
He said that without this proper educational foundation, many end up making choices that worsen their financial situation rather than improve it.
Kamlana was speaking at the inaugural FSCA Financial Education Summit held recently. The theme of the summit was: “Creating accessible financial education for all South Africans”. The FSCA in collaboration with Visa, the JSE, and the Financial Services Consumer Education Foundation (FSCEF) held the summit.
He said: “Take, for example, the two-pot retirement system designed to allow people to access part of their retirement savings, offering some much-needed financial relief.
“The undoubted outcome, however, is that without a proper understanding of the impact of these early withdrawals, there is a real risk that members of retirement funds might end up jeopardising their long-term financial security because the retirement savings are for retirement. The temptation to dip into retirement funds early, especially when one is under pressure, could leave many South Africans with insufficient savings for their retirement. This really highlights why financial education is so crucial.”
He said people needed to fully understand the impact of their choices, whether it’s accessing retirement savings early or engaging in debates about where their retirement savings should be invested.
“Financial education is at the centre of shaping customer outcomes in the financial sector. In this context, we urge all stakeholders, retirement funds, employers, unions, and others to intensify their efforts to ensure that their members and employees have the knowledge they need to make smart decisions about the two-pot retirement system.
“It’s important to note that this responsibility does not rest solely with financial institutions. It’s incumbent upon each of us to educate our families and friends about the risks and the benefits of the system,” the commissioner said.
He said financial education was also essential to achieving true financial inclusion.
"Yes, we’ve made lots of progress as a country in promoting access to financial services, with just over 80% of South Africans now having a bank account.
“But true financial inclusion remains a challenge. Just having an account doesn’t mean people know how to use it effectively, as evidenced by the data from the FinScope Consumer Survey 2023, which indicates that 37% of account holders withdraw all their funds immediately upon receiving the deposit,” he said.
According to Kamlana, this behaviour points to a deeper issue that many individuals may not fully understand how to use financial products and services to meet their needs.
“With adequate financial education, we can empower people to maximise the benefits of the financial services available to them, understand the key risks, and even contribute to product suitability,” he said.
Magda Bianco the chairperson of the OECD INFE, the International Network on Financial Education, gave the international perspective on financial inclusion and said: "While digitisation helped with financial inclusion, there were some parts, 25%, one-quarter of the world population, that was still excluded.
“1.4 billion people are excluded in some areas, for example, in some Saharan African countries, more people were excluded within some groups – women, elderly, less educated, poor, those living in rural areas, migrants.”
She said in some developed countries, where formal inclusion is close to 100% on average, there were many gaps for these groups that she just mentioned.
“Where inclusion is high in a rather homogeneous way, I would say, or where it has increased substantially. There are now worries about possible negative consequences of a very rapid increase in digital financial inclusion, for example. For payments, where the rise in inclusion has been more substantial, risks of fraud have increased everywhere for those with low digital competencies, the elderly,” Bianco said.
She said that given the ease of using some digital financial instruments, for example, some debt instruments, “buy now, pay later”, the risk of over-indebtedness was increasing.
“The specific role of financial education, which over time, has become more and more needed, relates to the fact that even when we have good public protection and good consumer protection, it cannot substitute entirely individual choices.
“Many of these choices are still in the hands of final users. We’ve heard about everyday decisions about spending and saving, how much we must invest, and which instrument to use, with the effect of liberalisation of financial markets. There are many opportunities, but also many challenges. It is also, I would say, a competence for being an active and aware citizen,” she said.
Department of Basic Education (DBE) chief education specialist – Business Commerce & Management Subjects Mzikayise Masango said the department was reviewing, updating, trimming, and strengthening content in existing subjects for financial literacy.
“We want to provide financial education that will impact into financial decisions of learners and prepare them before when they go to the world of work. This shows some of the areas that we are considering for inclusion in our life orientation curriculum going forward, we have not yet decided on the correct content.
“We are also working with the National Consumer Financial Education Committee to make a joint submission in terms of what is it that they will need us to cover,” he said.
PERSONAL FINANCE