Inequalities and poor education hampering efforts to foster financial inclusion

The sustained efforts to foster financial inclusion in South Africa are hampered by the high levels of inequality and poor education.

This is according to Dr Mamphela Ramphele, speaking at the recent Critical Thinking Forum hosted by Nedbank and Old Mutual, in partnership with the Mail and Guardian newspaper and Radio 2000, with the aim of bringing to the fore challenges which hinder efforts to make financial inclusion a reality.

The latest FinScope report indicates that 19% of 16 to 19 year olds depend on government grants whilst a further 49% relies on others for money. Furthermore, the World Economic Forum recently rated the quality of South Africa's maths and science education last-amongst 62 countries.

The combination of these factors makes it increasingly difficult for consumers who do not have adequate literacy or income to fully comprehend financial concepts and thereby participate in the economy.

Dr Ramphele said, "If one also looks at today?s graduates, young professionals, and budding entrepreneurs, they are all heavily indebted because they are trying to keep up with the Jones?s. All these are signs of the cost of inequality. Therefore, the focus needs to be on strengthening the foundations of the economy as well as the empowerment of participants to actively partake in the system.'

Although financial education would be seen to be directed to a certain segment of the population; everyone should be educated on what options they have as customers and consumers. The language of financial institutions should not be seen exclusively as the domain of the middle-class because it has been shown that even the middle-class is not effectively using the products that are offered to them.

Dr Ramphele further emphasised that education will play a key role in ensuring that financial inclusion is realised and encouraged the financial services sector to collaborate with the government in developing a sustainable model to address the challenges.

Her views resonated with Ingrid Goodspeed, Chief Director of Financial Inclusion and Market Conduct at National Treasury, who commended the current financial literacy programmes that have been rolled out by banking institutions such as Nedbank and Old Mutual. "As National Treasury, we believe that the myriad of programmes need to be revised in order to include those who are out of school but vulnerable to unscrupulous activities,' she said.

Mandla Zwane, Head of Strategic Relationships and Customer Education at Nedbank relayed his experience when it comes to efforts aimed at educating consumers. He says, Nedbank recently conducted a home loan consumer education programme to educate people about borrowing but surprisingly, many of the participants were not interested in absorbing the content but simply wanted the certificate so that they can access a loan. This, he says, speaks to the need for financial institutions to change their adverse attitude towards consumer education and start appreciating the value of being financially fit.

Old Mutual?s director of marketing, communications and corporate affairs, Mohale Ralebitso similarly cautioned against the misconception that its only entry level segments that need financial education, "We find that there are very high income earners who are not significant savers, relative to their saving potential. Therefore, what this tells us is that financial education is necessary across different income segments,' he says.

Primary education needs to lay the foundation for literacy levels for citizens so that they are able to understand certain key concepts when it comes to financial matters. Poor education immediately limits anyone from getting a grasp of what it means to be financially literate and know the various services and products available to them and how to use them wisely and to their benefit.

Financial education should be a part of society?s everyday way of being, from school level including primary all the way through to graduates. All those who have joined the workforce and are contributors to the economy, need to know and understand what financial inclusion and literacy means for them and how it will evolve as their lives and economic situations change over time.

Nedbank?s Thulani Sibeko, group executive for marketing, communications and corporate affairs highlighted that "simplicity and transparency of offerings are two of the most important factors in ensuring successful financial education. We cannot overstate the need to match clients to the right products because this mitigates the long term burden of clients incurring unnecessary costs.'

Over the years, both Nedbank and Old Mutual have championed a number of initiatives aimed at advancing financial inclusion, including the Imbizo project which ignites economic activity across disadvantaged markets. Nedbank also runs its own consumer education workshop while also supporting the Teach Children To Save? initiative.

What do you think?
Does South Africa have a culture of trying to 'keep up with Jones's'?If you have any questions about this article please email [email protected]