Financial literacy skills are an essential area of knowledge that helps everyday people assess their financial wealth, set realistic goals, and take steps towards achieving those aspirations over a long-term plan. The bones of this analysis will focus on the current state of South Africa. We’re choosing to look at South Africa as it presents a fascinating cross-section of financial identities. It’s an industrialised, technologically relevant country that’s currently in the top three of Africa’s largest economies overall.
However, South Africa also has some of the most dismal statistics when it comes to individual financial literacy and planning. This suggests there is a large disparity between different financial groups and this is where a fundamental shift to how those most at risk are educated from a young age is required. So while we’re talking about South Africa below as one of the most pertinent examples, please keep in mind that this disparity is present all over the world, regardless of what country you’re in.
Since financial literacy is not commonly taught in schools, it is often a glaring gap in awareness that causes households to make unwise decisions, rely on short-term borrowing, or fail to recognise when they have opportunities to improve their position. This is often a case of failing to make decisions that reward long-term patience in favour instead of making a short-term situation easier. It’s hard to blame many people for favouring this route considering how many families are skirting the line of poverty and struggling with an unprecedented cost of living increase in many places.
It is naive to believe that ‘we’re all in the same boat’ amid rising costs of living. The reality is that for many families with higher levels of accrued generational wealth, investments and multiple revenue streams, for example, it is much easier to weather the storm. This diversification of assets is a failsafe against much of the unpredictability that is so terrifying to those on the outside of wealth. Questions such as ‘what if I lose my job?’ and ‘what will I do if my rent rates continue to climb?’ do not carry the same venom any longer.
It’s crucial to realise that generational wealth is not reserved for elite families with inherited fortunes. It can also mean being able to purchase a home, or the land it sits on or putting some money aside in savings for your children to inherit, which is the crux of this article.
Why Is Generational Wealth Important?
Most habits and behaviours are inherited from our parents, so if our elders have never budgeted, saved or held assets, it stands to reason that we might not assume these things are worthwhile.
IOL recently reported that 48% of South Africans have virtually no savings and that it is the worst-performing country out of 30 in terms of financial competency.
The diverse culture in South Africa means that many consider talking about finances impolite, or even taboo. However, building a healthy and open attitude to money is a necessary channel we need to gouge in the established social structure in order to break free of those ingrained habits and empower younger generations to aim higher, talk more amongst their peers and subsequently hold employers and elected officials more accountable.
Of course, we should not neglect the fundamental building blocks of financial literacy either. Knowing how to budget effectively, compare interest rates, open a savings account or use credit in a safe way are all critically important life skills in the modern, digital world. One could argue this knowledge is more important than ever before as it’s almost a certainty that our children won’t be dealing with physical notes when they purchase anything, wherever they are. Just think about the last time you saw someone under twenty pay for something using paper money. The contactless market has evolved even further now with most of the young generation utilising their phones to pay for almost everything. This can create a pronounced and dangerous dissonance between the very real threats of debt and the instant gratification and ease that comes with instant purchases without ever coming close to the concept of exchanging your money.
In a podcast interview with Offer Forge The Head of Marketing at Wonga, James Williams reiterates that educating younger people on money management is an essential life skill, and the knowledge underpins the ability to create a financial legacy that will stretch for generations.
Teaching Children Basic Financial Literacy
You don’t have to be a finance professional to educate your family about good financial awareness; introducing the topic into routine discussions is a promising start. The earlier the better in most cases. Here are some tips to help you integrate financial literacy in the younger generation:
- Involve children with finances – if they see you plotting your budget, paying bills, saving towards a goal, paying back debts or making decisions about which items to buy, they will soon be familiar with the factors that go into these tasks.
- Introduce ways to earn – young children should focus much of their energy on schooling. Still, if they can make a small amount for chores, it can help demonstrate how effort equals reward (and inspire a passion for business).
- Treat money management as an essential, not an option. Saving towards the cost of activities or items they would like to buy or discussing how to make plans and chip away at them with regular savings are all ways to instil positive behaviours.
- Lead by example – basing your spending on what you can afford and being open about the decisions you make when handling household finances models the attitude you’d like your children to have.
By showcasing how finances work and why they are important, we can support today’s young people and ensure they have the best possible chance of creating a life built on responsible spending and long-term saving and ultimately be able to start creating generational wealth. Good luck!