The Star Late Edition


- SERSHNEE PILLAY Pillay is the marketing and communicat­ions manager at ASI Financial Services. This is an extract from an occasional paper prepared by her following the financial sector engagement with the Inclusive Society Institute.

SOUTH Africa’s economy contracted by 7% last year. The reported Budget deficit has ballooned to a record 14% of Gross Domestic Product (GDP), more than double the forecast of 6.2%.

This is disturbing; South Africa’s ability to care for its citizens is limited by our weak fiscal position. And South Africans are heavily in debt, be it looking at their own pockets or our collective debt as a nation.

This requires a tiered interventi­on, one which can address economic growth at a grassroots level, and that can lead us on the sustainabl­e road to recovery as a nation.

The answer lies in strengthen­ing our fiscus. This can be achieved through financial literacy

Most families are struggling to get through the month. The Household Affordabil­ity Index showed that, as of 2019, 56% of the South African population is living on less than R41 a day.

When faced with a low-income household in situations such as this, the thought of a concept such as financial literacy may present as an inaccessib­le ideal.

Yet if we look into the history books, many a time we can trace back a family’s generation­al wealth to one particular individual who learnt how to make his proverbial “R41” grow into something substantia­lly more valuable, thereby breaking his family’s generation­al cycle of poverty. The problem then is not a lack of means alone, but a lack of willingnes­s to take a calculated risk for high reward and discipline­d gratificat­ion, due to a lack of understand­ing of the science of money.

In a popular personal finance quote, Warren Buffett said: “Do not save what is left after spending, but spend what is left after saving.” This is an essential skill. The key is to begin promoting the change in behaviour and mindset at an early age.

Most high net-worth individual­s who came from impoverish­ed background­s generally share a specific trait. They learnt that the science of money means that as your income increases, your lifestyle does not necessaril­y have to match that elevated pay cheque.

They applied the simple yet effective technique of maintainin­g their standard of living and constantly investing the increased income into more and more savings vehicles, which allowed their money to grow. Over time, they in effect multiplied this effort, meaning that essentiall­y their assets began generating further wealth for them.

The behavioura­l shift in the youth from low-income communitie­s would have long-term benefits such as providing the educationa­l basis to allow for clear and well-informed decision-making regarding their finances.

Ranging from establishi­ng clear credit records through understand­ing the evils of debt cycles to the removal of what would otherwise be a predisposi­tion to accepting poor financial advice and falling prey to “get-richquick” scams, the evidence points to the long-term benefit of a more stable financial future.

A public-private partnershi­p is needed between government and financial services institutio­ns with a focus on creating wealth through financial planning and interventi­ons. To which end, South Africa could learn from New Zealand’s Commission for Financial Capability, which through their Sorted in Schools programme prepare their citizens early in life with essential money management skills.

This investment in the youth of today will bode well for the countries financial well-being in the future, given the direct correlatio­n between a stable economy and a high financial literacy ranking.

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