Financial Education is Crucial to Curb Financial Illiteracy and Related Challenges among Low-Income Earners in South Africa

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The COVID-19 pandemic has had unprecedented socio-economic effects that have negatively impacted the livelihoods of most households. Due to the lack of appropriate financial education, low-income earners in South Africa are susceptible to signing up for financial services that they do not understand and end up being over-indebted.

Financial education enhances financial consumers’ understanding of financial products, services and concepts. It is vital to improving their knowledge of saving, budgeting, investment, financial planning, financial risks and responsible borrowing. Financial education is also essential to assist financial consumers to make well-informed decisions regarding the management of their finances for both short- and long-term financial goals.

Educated and well-informed financial consumers improve their resilience to financial fragility, taking into consideration changes in economic and related situations. Poor and/or a lack of appropriate financial education has contributed to low-income earners being financially excluded since they do not understand how to access and utilise the basic financial services and products offered by financial institutions.

This scenario calls for regulatory bodies and other relevant stakeholders to offer adequate and appropriate financial education programmes and initiatives to strengthen financial consumers’ financial resilience, especially low-income earners in South Africa. Together with the government, they should consider developing a policy framework for financial education during a crisis such as the COVID-19 pandemic to empower low-income earners financially and economically.

Financial education is crucial in the ever-changing economic climate in which low-income earners now shoulder greater personal financial responsibility in the face of increasingly complicated financial products. Such education could also curb consumer over-indebtedness which is often a result of poor money management choices by low-income earners.

A robust financial education regulatory framework to promote financial education is essential to curb financial illiteracy and related problems among low-income earners in South Africa. The relevant provisions of the National Credit Act 34 of 2005 (NCA) as amended, the Consumer Protection Act 68 of 2008 (CPA) as amended and the Financial Sector Regulation Act 9 of 2017 (FSR Act), among others, that deal with the provision and promotion of financial education in South Africa are not sufficiently robust to promote and regulate financial education as they only make partial provision for it without imposing an obligation on financial consumers to undergo such education.

South Africa could draw lessons from Botswana, Australia and the United Kingdom that have made significant and commendable strides in developing and adopting robust financial education measures for financial consumers.

For instance, Botswana has a relatively high level of financial education compared to other African countries, including South Africa and is ranked as the continent’s leading country in terms of financially literate adults. In Botswana, financial education is viewed as an important intervention to secure citizens, especially young people’s future finances.

The United Kingdom has also made positive strides in promoting financial education for all its financial consumers. Its financial regulatory body, the Financial Conduct Authority, established The Money Advice Service to raise awareness and understanding of the financial system. The Service provides guidance on building household financial resilience during crises that negatively impact the economy, livelihoods and Gross Domestic Product such as the COVID-19 pandemic.

The Australian government provides grants for financial education and stakeholders such as the Australian Securities and Investments Commission (ASIC), non-governmental organisations and banks play an active role in providing such education.

Successful implementation of financial education in South Africa would require the establishment of capacity building programmes and initiatives, with financial and logistical implications. Moreover, the government, regulatory bodies and other stakeholders should consider adopting consistent, progressive savings incentives to promote financial education through savings. Lastly, policymakers should consider enacting a statute that specifically addresses financial education in the country.

* Financial Education is Crucial to Curb Financial Illiteracy and Related Challenges among Low-Income Earners in South Africa: This opinion piece was influenced in part by Magau’s LLD thesis entitled A Comparative Legal Analysis of the Promotion of Financial Education for Low-Income Earners in South Africa submitted to North-West University.

Dr Phemelo Magau is a lecturer in UKZN’s School of Law. He holds a Doctor of Laws (LLD) in Mercantile Law.

Photograph: Supplied

*The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of the University of KwaZulu-Natal.