Understanding money is an essential survival skill. Every individual should take the time to understand the basics.
Yet amongst South Africa’s very disrupted social environments, parents or carers are battling to make ends meet under conditions of poverty, unemployment, inequality, and illiteracy. “Many South African’s don’t have the luxury of learning the basics about money, less still seeing these basics in action in the home,” says John Manyike, Head of Financial Education at Old Mutual.
If financial institutions and government are to meaningfully impact how South Africans understand and use money, “especially how we save and prepare for the future, we need to keep it super simple, and honest – by going back to brass tacks at grassroots,” says Manyike.
In short, any financial education initiative that financial services organisations or government plan should concentrate on the very simple basics, as follows:
- Money is a two-edged sword. It is both a liberator and an enslaver, depending on how you use it. Money can buy you freedom, growth, and successes – or mismanagement or the love of it can leave you over-indebted, stunted, and perpetually struggling to survive.
- Getting money right starts with Vision and planning. Budgeting is part of planning to support the vision. Every individual and household should understand how much money comes in and go out. It is important to know what you spend money on and apply wise financial principles to redirect your money to work productively by saving and investing some of your money. This is what we mean by being money smart.
- If there is any money available after the essentials are covered, then money should also be set aside for education and retirement, or for a rainy day when jobs are lost, or money is not coming in anymore.
“Entertainment, the latest technology, fancy clothing and exciting experiences are not essentials and should only be considered once the essentials including saving and investing are dealt with,” cautions Manyike.
- Credit is important but it should be used wisely and cautiously. Credit should only be used for major purchases or investments that will create more money in the future. Otherwise, credit should be avoided when not needed.
Understanding how to use credit wisely means understanding what an appreciating asset is. An appreciating asset becomes more valuable over time. A depreciating asset is something that will become less valuable over time. A flat or a house (i.e. fixed property) usually grows in value over time. So, therefore getting credit to buy a house is a good credit. Similarly, a good education always stands one in good stead over time. Any investment in relevant education grows in value over time. As such, a limited student loan for a course that will improve job prospects is a good idea. Getting credit for fancy phones, cars, or the latest clothing all of which will lose value over the years is not a good idea.
“Being honest and tough about what you get credit for makes the difference between money working for you – or you working for money,” warns Manyike.
- Finally, the purpose of earning is not just to spend. Instead, the purpose of earning is to save first and spend later.
We need to save and invest. While this takes discipline, “as you age your obligations increase and it gets harder to save,” warns Manyike. Saving needs to become a personal habit – like washing your hands or greeting people politely. “Saving and investing is the only way to build up assets (either fixed, like a house – or liquid investments, like a retirement fund) that will add to your personal value and prepare you for old age, future unemployment or any other surprises that might hit you from time to time,” says Manyike.
While these five points may sound simple, they require discipline and practice.
South Africa is a developing country with one of the highest official unemployment rates in the world. Even having an income is becoming a rarity amongst most groups of South Africans these days. While the informal sector, SME creation and the gig economy may all offer routes to alternative incomes for many South Africans, “the basics of how this income should be used – and how spending should be prioritised – remain the same,” says Manyike.
There are over 70 participants taking place in Money Smart Week South Africa, the largest co-ordinated consumer financial literacy campaign taking place this week.
“The logical place to create financial awareness and promote educational programmes is at ground level. Here, the bedrock offered by financial inclusion can be built on and escalate upwards to include other audiences. Rather than going it alone, governments are now increasingly moving towards public/private partnerships that harness different experiences and expertise to achieve common objectives,” says Lyndwill Clarke, the Head of Consumer Financial Education Department at the Financial Sector Conduct Authority (FSCA) “It is in this regard that Money Smart Week South Africa sets new standards for reaching communities.”
If South Africa’s financial service organisations and government can work together to ensure that every South African takes to heart – and truly understands – these five simple points about money, “we will have a genuine shot at using Money Smart Week to broaden financial inclusion and build long term prosperity through financial education,” concludes Manyike.