Does your financial heritage help or hinder you financially?

WHEN we think about our heritage, we might imagine the parts of it that include food, culture and history. However, an important aspect of our heritage that is often overlooked is how we handle our finances.

Money habits are something we observe from our parents, grandparents and those nearest and dearest to us when we are very little. Their relationship, experience and behaviour with money can influence how we view and manage our own finances, and we may inadvertently pick up these engrained ‘historical habits’ – for better or worse.

However, recognising the ‘inherited’ traits that hinder and hold us back financially is key to levelling our country’s economic playing field, which is where financial literacy can assist us in growing into smart, financially-free adults.

“Perhaps our parents struggled to make ends meet and found themselves turning to credit to get by. This could lead to us viewing debt as a necessary part of life – not realising that we have the power to take control of our spending and lending,” says Naledi Totana, Compliance Officer at local debt advisory firm, National Debt Advisers.

According to the Financial Services Conduct Authority’s Financial Sector Outlook Study 2022, more than 50% of South Africa’s credit-active consumers are over-indebted – and this number continues to climb, thanks to the economic toll claimed by the pandemic. The report found that 2015 – 2020 the number of credit-active consumers with an impairment record fluctuated from 38% – 48%.

“It’s never too late to change our behaviour and set ourselves on the path to live a comfortable life. It’s also our responsibility to model sound financial behaviour and instil positive habits in our children, so they are free to build wealth, and not plagued by financial difficulty. Financial literacy will play a key role in helping the South African economy to recover and flourish in the years to come, leaving a fruitful heritage for generations to follow,” says Totana.

Totana breaks down some of the important things to consider when it comes to our inherited financial habits – and what we teach our children.

Financial literacy a key factor to growing wealth

“Our parents may not have been financially-savvy, but we don’t need to accept this as our lot in life. Taking control of our money now can make the world of difference to our future financial well-being – and that of our children,” says Totana.

“It is important that we take the time to understand our finances and invest in that which will help safeguard our future, such as insurance and retirement savings. Make sure you take the time to teach your children basic financial concepts, such as saving, budgeting and credit. Before they can learn good financial habits, they first need to understand the value of money and why it should be handled with care,” she says.

Adopting good habits

“Remember that your children not only listen to what you say, they see what you do. Therefore, if you want them to practice good money habits, you need to set the example.

“Let them sit with you when you draw up a simple household budget so you can teach them the importance of not letting their expenditure exceed their earnings. Help them identify the difference between a luxury and a necessity when you go grocery shopping. Also, show them the importance of saving from an early age, through paying them a small allowance, giving them a piggy bank or opening a bank account for them,” she suggests.

Know the difference between good and bad debt

Perhaps our parents were too reliant on credit or occasionally turned to loan sharks to make ends meet. Totana believes that there’s no need for us to perpetuate this legacy.

“It is important for us to first understand the difference between good and bad debt, before we can pass this knowledge on to the generations that follow. Good debt has the potential of creating additional income streams or building our wealth, and could include things like investing in a home, starting a business, or spending on a child’s education. Bad debt usually refers to that which depreciates in value, draining your income through steep debt servicing costs.

“Bear in mind that whether debt can also be classified as ‘good’ or ‘bad’ is also down to affordability. Yes, a house is an investment, but if you cannot comfortably afford it, it might cause you severe financial stress.”

If you find yourself drowning in debt, she says it is important to recognise this and seek help in the form of a qualified debt counsellor, who can help you structure a repayment plan that will allow you to chip away at it in manageable chunks. There is no shame in this, adds Totana, and taking ownership and responsibility for debt is also positive behaviour that you will model for your children.

Black tax

Black tax (or giving back to one’s family) is often associated with one’s heritage and family history.

While black tax is often portrayed in a negative light, South Africans who bear the responsibility for extended families can find ways to empower themselves and their families financially to build generational wealth.

Sipho Mncwabe, head adviser for transformation at SanlamConnect, and Farzana Botha, Segment Solutions Manager at Sanlam Savings, believe that ‘black tax’ can help unite families through honest conversations and shared goals:

Know your limits and stick to them, they say.

| IOL WHEN we think about our heritage, we might imagine the parts of it that include food, culture and history. However, an important aspect of our heritage that is often overlooked is how we handle our finances.