South Africans are losing financial literacy

In the wake of Covid-19 and the accelerated digitisation of financial services, the gap between South Africans who have highly developed financial literacy and those with little or none has not just widened, it has taken on new dimensions. 

The consequences for society are dire. They are to be found in our nation’s high debt levels, the ease with which too many of us fall victim to scamsters, business ideas lost due to lack of knowledge about or limited access to funding. This could lead to mental health issues such as anxiety and depression. All of these affect the most financially vulnerable segments of our society the worst. 

Research by development economists Elizabeth Nanziri and Murray Leibbrandt (2018) demonstrates a decline in financial literacy across all levels of education and among various demographics. This indicates that even those with higher education are not immune to the erosion of financial literacy skills, which are essential for economic independence and informed decision-making. 

Their work is corroborated by that of the Human Sciences Research Council, which has pointed to a notable decline in the national average financial literacy score that predominantly affects women, the youth and the less educated demographic groups despite ongoing financial education initiatives.

Moreover, a reflection from the University of Cape Town’s Graduate School of Business emphasised the significant economic boost that could be achieved through enhanced financial literacy, highlighting the need to integrate financial education within broader economic development strategies.

We need to reverse this trajectory.

The correlation between financial literacy and economic indicators such as poverty levels, business success and gross domestic product growth can no longer be ignored.

Financial literacy education, which encompasses a spectrum of skills, including budgeting, saving and managing debt, numerical skills, financial product awareness, knowledge and usage, as well as financial planning and wealth building is critical for individuals and for our society.

Despite legislative actions, regulatory frameworks, and investments in financial literacy education aimed at fostering an inclusive financial ecosystem, these measures alone have proven insufficient. 

A 2021 HSRC report for the Financial Sector Conduct Authority (FSCA) highlights the acute economic problems and financial distress prevalent among disadvantaged sectors of the population.

The report describes the evolution of financial literacy in South Africa from 2011 to 2020. It shows significant declines in basic arithmetic (division), interest calculation, awareness of interest on deposit and understanding of compound interest. But there was a modest improvement in the comprehension of inflation rates and of inflation’s effect on the value of money.

This suggests that more effective and inclusive financial education strategies are needed to close the literacy gap and support the financially vulnerable. It calls for a reassessment of the delivery and accessibility of financial education to ensure it effectively meets the population’s needs. 

Encouragingly, the slight improvement in the understanding of inflation suggests that focused educational interventions can yield positive outcomes. Bespoke and well-targeted educational measures are needed to combat the declining trend in financial literacy and empower individuals with the financial acumen necessary for economic success.

The need for research in this domain cannot be overstated. It is research that will audit the efficacy of ongoing initiatives, gauge the utility of fiscal expenditures, and catalyse strategies to reverse the current downturn in financial literacy. 

It is this scholarly scrutiny that will illuminate pathways to not just bridge the financial literacy gap but to fundamentally narrow it.

Financial literacy programmes must evolve to not only enhance overall literacy but also to address persistent gaps effectively. This requires developing programmes that are dynamic and responsive to the shifting tides of technological advancement and economic demand, and that are accessible and relatable, empowering individuals to thrive and contribute to the nation’s economic growth.

The journey towards financial literacy is not just about improving numbers on a chart; it’s about shaping futures and fortifying the very bedrock of our society. Financial education is a powerful tool for economic participation and personal development, and the investment we make in it today will yield dividends in societal well-being and prosperity for years to come. 

The goal is not merely to increase the percentage of people who can comprehend a budget but to foster a population that can navigate the intricacies of financial products, interpret economic trends and apply this knowledge to improve their personal and communal financial health.

As we observe Financial Literacy Month, let it be a time of reflection and a catalyst for actions that ensure a more financially literate, empowered and equitable South Africa. By leveraging recent research findings and responding to the accelerated digital transition, South Africa can pioneer a model of financial literacy that sets a precedent for the continent and beyond.

Mamapudi Nkgadima is the managing director of African Response.