South Africans are losing financial literacy

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Mamapudi Nkgadima | Managing Director | African Response | mail me |


In the wake of COVID-19 and the accelerated digitisation of financial services, the gap between South Africans who have highly developed financial literacy and those with little or none has not just widened – it has taken on new dimensions. 

The consequences for South African society are dire. They are to be found in our nation’s high debt levels, the ease with which too many of us fall victim to scamsters, business ideas lost due to lack of knowledge about or limited access to funding. This could lead to mental health issues such as anxiety and depression. All of these affect the most financially vulnerable segments of our society the worst.

Financial literacy & economic indicators

Research by development economists Elizabeth Nanziri and Murray Leibbrandt (2018) demonstrates a decline in financial literacy across all levels of education and among various demographics. This indicates that even those with higher education are not immune to the erosion of financial literacy skills, which are essential for economic independence and informed decision-making. Their work is corroborated by that of the Human Sciences Research Council (HSRC), which has pointed to a notable decline in the national average financial literacy score that predominantly affects women, the youth and the less educated demographic groups despite ongoing financial education initiatives.

Moreover, a reflection from the University of Cape Town’s Graduate School of Business (UCT GSB) emphasised the significant economic boost that could be achieved through enhanced financial literacy, highlighting the need to integrate financial education within broader economic development strategies. We need to reverse this trajectory.

The correlation between financial literacy and economic indicators such as poverty levels, business success and gross domestic product growth can no longer be ignored.

Financial literacy education, which encompasses a spectrum of skills, including budgeting, saving and managing debt, numerical skills, financial product awareness, knowledge and usage, as well as financial planning and wealth building is critical for individuals and for our society.

The acute economic challenges

Despite legislative actions, regulatory frameworks, and investments in financial literacy education aimed at fostering an inclusive financial ecosystem, these measures alone have proven insufficient.

A 2021 HSRC report for the Financial Sector Conduct Authority (FSCA) highlights the acute economic challenges and financial distress prevalent among disadvantaged sectors of the South African population.The HSRC/FSCA report describes the evolution of financial literacy in South Africa between 2011 and 2020. It shows significant declines in basic arithmetic (division), interest calculation, awareness of interest on deposit and understanding of compound interest. However, there was a modest improvement in the comprehension of inflation rates and of inflation’s effect on the value of money.

This suggests that more effective and inclusive financial education strategies are needed to close the literacy gap and support the financially vulnerable. It calls for an urgent reassessment of the delivery and accessibility of financial education to ensure it effectively meets the population’s needs.

Encouragingly, the slight improvement in the understanding of inflation suggests that focused educational interventions can yield positive outcomes. Bespoke and well-targeted educational measures are imperative to combating the declining trend in financial literacy and empowering individuals with the financial acumen necessary for economic success.

Financial empowerment & resilience

The need for research in this domain cannot be overstated. It is research that will audit the efficacy of ongoing initiatives, gauge the utility of fiscal expenditures, and catalyse strategies to reverse the current downturn in financial literacy.

Most importantly, it is this scholarly scrutiny that will illuminate pathways to not just bridge the financial literacy gap but to fundamentally narrow it. Our dedication to this cause must translate into actionable insights that propel those most in need towards financial empowerment and resilience. This includes constant evaluation of the work done. To this end, African Response has assisted clients in consumer financial education, having educated 46,665 people in KwaZulu-Natal, Limpopo, and the Eastern Cape since 2020. This figure comprises 21,642 people educated through in-person classroom settings and 25 023 in one-on-one in-person sessions during the COVID-19 pandemic lockdown.

Financial literacy programmes must evolve to not only enhance overall literacy but also to address persistent gaps effectively. This requires developing programmes that are dynamic and responsive to the shifting tides of technological advancement and economic demand, and that are accessible and relatable, empowering individuals to thrive and contribute to the nation’s economic growth.

In conclusion

The journey towards financial literacy is not just about improving numbers on a chart; it’s about shaping futures and fortifying the very bedrock of our society. Financial education is a powerful tool for economic participation and personal development, and the investment we make in it today will yield dividends in societal well-being and prosperity for years to come.

Remember, the goal is not merely to increase the percentage of people who can comprehend a budget but to foster a population that can navigate the intricacies of financial products, interpret economic trends, and apply this knowledge to improve their personal and communal financial health.

Let it be a time of reflection and a catalyst for actions that ensure a more financially literate, empowered, and equitable South Africa. By leveraging recent research findings and responding to the accelerated digital transition, South Africa can pioneer a model of financial literacy that sets a precedent for the continent and beyond.


 



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