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Experts call for inclusive financial education reform



Financial education in South Africa is still lacking, and much must be done to empower consumers to manage their finances better so they can extricate themselves from crippling debt and reduce pervasive financial anxiety.

This is the view of Lizl Budhram, Head of Advice at Old Mutual Personal Finance, speaking on the international Financial Planning Standards Board’s (FPSB) updated practices, released recently.

Budhram noted that the sector must focus on improving inclusivity to serve all levels of society in South Africa.

“Most South Africans need financial planning services but cannot afford them. It will take a village to continuously bring the currently excluded masses into the financial planning ecosystem,” she said.

“Financial advisers can offer savings or investment products. Still, suppose the customer is not ready for it or has not been taught from the onset about the importance of having an emergency fund, for instance. In that case, the value of the investment and its longer-term outcome is at risk,” continued Budhram.

According to the 2023 Old Mutual Savings and Investment Monitor (OMSIM) research report, 45% of South African consumers are financially stressed, and 7 out of 10 are trying to cope with incomes that have not improved since 2020. 70% of South Africans have not seen any improvement in their income since 2020, and 45% remain considerably financially stressed.

OMSIM found that consumers struggle to build savings buffers, with 30% claiming savings that last only one month or less. Debt levels are increasing, debt is considerably more expensive, and 33% of home loan holders are struggling to meet their monthly repayments or falling behind.

“South Africa needs to focus on forming and creating positive behaviour with finances; once the behavioural issues are tackled, wealth will be created,” said Budhram. “It will take one family at a time, enabling and supporting the right financial behaviour, to achieve long-term, meaningful financial wellness.”

In April this year, FPSB, the international CFP certification program owner, updated its global financial planning standards. It introduced a host of new concepts to align financial planning standards with investors’ evolving needs.

The way forward

Budhram says the financial services industry’s primary purpose is to give its customers a holistic financial planning service focusing on their needs, looking at potential risks and blind spots that the customer has not realised.

“We define financial planning from a customer’s perspective; our main goal is to look at financial planning through the lens of the customer. It is not about enforcing a certain product but looking holistically at the customer’s need.”

Budhram pointed out that much still needed to be improved in financial education. The current material was not forward-thinking, and at its core, there must be an emphasis on human skills and the psychology of financial planning as outlined by the FPSB.

Budhram says to address consumers’ financial challenges effectively; the industry must provide more effective financial education and literacy programmes, all aimed at enhancing the understanding of financial products and making informed choices linked to financial wellness. These programmes must cover various topics, from budgeting and cash-flow management to credit and debt management to savings and investments.

She says that while much of the current financial education is not effectively addressing an epidemic of poor financial decision-making and behaviour, introducing the Two-Pot Retirement System would improve economic outcomes for many employees. Having some retirement savings in place will allow employees to access a third of those savings for emergencies, leaving most employees in a much better position.

“Financial advisers play a critical role in educating customers and giving ethical advice that benefits the customer’s family and future. Ours is to steer them in the right direction and assist them to make the right decision for their future,” concluded Budhram.