We have a massive task to open people’s eyes to how their money can work for them, writes Stanley Gabriel, CEO of Momentum Savings. September is Heritage Month, and it conjures images of history, belonging and inheritance. We hope to hand heirlooms, values and noble wisdom from generation to generation.
From a financial point of view, we may think of the property or financial assets we can leave a child, nephew or niece. That is apart from money wisdom and knowledge, which we should be chasing to acquire with as much enthusiasm as we try to get together a nest egg. Knowing what to do with money is almost more important than knowing how to earn money. Of course, many people live from hand to mouth, and don’t have the luxuries of these dreams.
Working for a financial institution, as I do, it is easy to assume that most people are doing as much as they can to save money and get their money to work hard for them through the miracle of compound interest. They want to make sure that the future of their parents and children will be as secure as their own.
Research done by Momentum-Unisa, unveils an interesting picture. It shows how many households earning what seem to be rather beefy incomes, don’t invest in financial products that can help their money grow or preserve it if something goes wrong.
Of people earning more than R360 000 per year (or R30 000 per month):
- 50% don’t have retirement products;
- 52% don’t have short-term insurance; and
- 52% don’t have any life insurance products.
Only 14,7% have a goal of leaving a legacy of any nature at all. The research shows that more than one million people who can afford financial products don’t have them. Why not?
The problem has many causes, of course, but a major challenge seems to be that people are not financially literate – they don’t know how to budget, plan and invest their money. The know that they must save, but not how much of their salaries. They know they must not take out too much debt but cannot calculate what amount will get them into trouble.
The latest survey by the Financial Sector Conduct Authority in South Africa claims 51 out of 100 people are financially literate but the Momentum-Unisa research shows, if you use a more conservative definition, that number is closer to 12 or 15. We believe that only about 15% of people know how to calculate interest. And people who can’t do the sums are not only people with little schooling, but people from all income levels – even professionals like doctors, lawyers and teachers don’t grasp the basics. They, therefore, don’t understand how interest on their investments can work for them, and interest on their debt against them.
Everyone in a position to do so, from the government to schools, tertiary institutions, businesses and the media, has a great responsibility to get involved in educating people financially. It’s the best way we can start building this country, and empowering its people today.
Imagine what legacy we can leave behind if we can start helping those one million people who can afford to help their families on their journey to success.