By: Nigel Willmott CFP®, Franchise Principal Momentum Consult Clearwater
South Africa is in the midst of a savings crisis – we simply don’t have enough money to last us in retirement. We are also R1.6 Trillion in debt. One of the best chances of addressing the situation is if industry players and professionals work together to give more people access to financial education. At the same time, consumers also need to become more vigilant and circumspect about how they manage and view their personal finances and their use of money. This has to be a combined, national effort, all round.
South Africa’s seemingly endless political upheaval is doing real damage to economic growth, but we can’t blame politicians for everything. As financial planners, on both a personal and professional level, we’re not doing nearly enough to assist and ensure that the majority of people have sufficient capital to last when they stop working. Later life security is under threat and has a knock-on effect and only exacerbates the poverty gap.
The numbers are frightening. Ideally, you should have enough capital to generate at least 75% of your final paycheck as income in retirement [and last upwards of twenty years], escalating annually at the inflation rate, but a recent Sanlam survey demonstrated that only 8% of South Africans achieve this – and the actual income replacement ratio is closer to 40% of final salary. Throw in the results of a MyTreasury survey, and it gets worse: 62% of us don’t reinvest retirement savings if we’re retrenched or if we change jobs; 38% of us don’t seek retirement advice and 90% of people with pensions don’t monitor their investment after signing up.
One of the key ways to improve this predicament is through financial education, but there are problems here, too: while most industry bodies have financial literacy programmes, there’s no unifying message or input from professionals, and the overall outcome is therefore diluted and ineffective.
The “financial education” drive must be multi-pronged and include combined elements of [financial] education, coaching, counselling and advice, not just one or the other in isolation. It also needs to be a sustainable ongoing effort as “money skills” is not a one-time activity.
The Financial Planning Institute of Southern Africa (FPI) launched FPIMYMONEY123™ in 2012, to broaden general financial literacy in communities where the situation is most dire, considering the critically high unemployment rate and the reliance of extended families on a single income.
The initiative openly communicates why you should budget, why you should limit credit dependency and how you can ultimately develop a positive savings culture, thereby kick-starting a conversation among participants about what they’re doing with their money and how they can do better. It is the “1-2-3” of money essentials.
Research backs up the effectiveness of the programme: for his Master’s degree in Local Economic Development through the University of Johannesburg, Tshepo Letebele interviewed groups of mineworkers in Welkom about their perceptions of saving after having completed the FPIMYMONEY123™ workshops. More than 80% of participants indicated that they were likely to try and save more, and 91% would recommend the programme to others.
The workshop content is indeed excellent, but the programme cannot exist in a vacuum. The only way to get more people involved is if all the FPI’s professional members assist. If every CERTIFIED FINANCIAL PLANNER® used his or her network to identify one suitable group of 30 people per year, FPIMYMONEY123™ would reach 150 000 people. Multiply that by seven years and more than a million people would be empowered to make better financial decisions.
Politics can change on a whim and the economy will move through many more cycles of spikes and dips. Only by saving through the cycles is there hope for economic freedom in South Africa – and the only way to create a culture of saving is through education and sharing of knowledge.
Reaching a million people in seven years is an inspirational idea – it might be the shot in the arm that the industry needs for a unified approach to financial literacy. Let’s all get behind the FPI and the FPIMYMONEY123™ programme, and let’s make financial education available to everyone.
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