Better financial education for all

By: Unati Kamlaina, Commissioner of the FSCA

Speaking at the FSCA Financial Education inaugural Summit, Unati Kamlaina, Commissioner of the FSCA, spoke of the dire need for financial education in South Africa. The Summit was aimed at elevating the strategic discussion around financial education and motivating heads of financial institutions and other relevant stakeholders to pledge their commitment towards certain financial education goals.

Financial education in South Africa has come a long way from simply being understood as offering basic tips on budgeting and saving. Today it’s about much more than that. It’s about empowering individuals with requisite skills and knowledge necessary to make informed financial decisions, protect oneself from financial missteps, and build the confidence to engage with sometimes complex financial products and services.

It is also about building resilience against economic challenges and, ultimately, enhancing the overall wellbeing and even economic stability of the country. We recognise that the challenges facing financial customers today – whether it is economic pressures, increasing vulnerability, or the rapid evolution of technology – demands a unified approach to financial education.

Alliances essential

It is only by working together, pooling our resources, and strategically aligning our efforts that we can ensure that financial education is not merely accessible, but also impactful. We all know that the rise in cost of living is hitting South Africans hard, with high indebtedness – all of these creating financial strain on household balance sheets. In 2021, the Human Sciences Research Council reported that 71% of the population didn’t have emergency savings, leaving them particularly exposed to financial shocks. Additionally, millions of credit-active consumers are behind on their debt repayments by more than three months. The Covid-19 pandemic also further exposed how vulnerable many of our households are to financial shocks.

So financial education is important, particularly in this economic reality, as it assists people to go through tough times and empowers them to make informed decisions in safeguarding their financial wellbeing. Without this proper educational foundation, many end up making choices that worsen their financial situation rather than improve it.

Take, for example, the new two-pot retirement system. The undoubted outcome is that without a proper understanding of the impact of early withdrawals, members of retirement funds might end up jeopardising their long-term financial security.

The temptation to dip into retirement funds early, especially when one is under pressure, could leave many South Africans with insufficient savings for their retirement years. This highlights why financial education is so crucial. People need to fully understand the impact of their choices.

Financial education is at the centre of shaping customer outcomes in the financial sector. In this context, we urge all stakeholders – retirement funds, employers, unions, and others – to intensify their efforts to ensure that their members and employees have the knowledge they need to make smart decisions.

Addressing technological innovation

Another key issue that calls for a unified approach to financial education is the subject of the rapid innovation and technological advancements in the financial sector. Whether this is through new products such as crypto, the digitisation of channels to which financial services are distributed, or the rapid use of artificial intelligence in the provision of financial services.

Sure, these new products and services offer convenience and broader access, but they also present risks, especially for consumers who might not fully understand how these innovations work. The increase in digital fraud and online scams underscore this point. As such, our financial education efforts need to keep pace with these innovations. We need to make sure that consumers can take advantage of these advancements without falling prey to the risks that they bring. Financial education is also essential to achieving true financial inclusion.

Yes, we’ve made lots of progress as a country in promoting access to financial services, with just over 80% of South Africans now having a bank account. But true financial inclusion remains a challenge. Just having an account doesn’t mean people know how to use it effectively, as evidenced by the data from the FinScope Consumer Survey 2023, which indicates that 37% of account holders withdraw all their funds immediately upon receiving the deposit.

This behaviour points to a deeper issue. Many individuals may not fully understand how to use financial products and services to meet their needs, whether due to mistrust, limited income or simply not having the right knowledge. But through adequate financial education, we can empower people to maximise the benefits of the financial services available to them and understand the key risks, and even contribute to product suitability.

Ensuring proper grasp of products

Another example is the widespread use of funeral insurance, sometimes used and understood as a form of saving, and the low uptake of other forms of insurance. These are signs that many people don’t fully grasp the range of financial products that could better serve their needs. If we don’t address these with proper education, true financial inclusion won’t happen, and consumers will remain vulnerable.

Given the severity of the issues, it is quite clear that no single entity’s financial education efforts or programmes can address them alone. This is why a unified and collaborative approach is essential to effectively tackle these challenges and ensure that financial education reaches every South African in a meaningful way.

National Treasury’s policy document, which introduced the Twin Peaks model of regulation in South Africa, underscores the need for collaboration. Structures like the National Consumer Financial Education Committee and initiatives such as the Money Smart Week South Africa have been instrumental in fostering this unified approach. However, the rapidly evolving financial sector landscape demands that we go beyond just working together. We must commit to having clear and measurable targets if we want our efforts to have a lasting and meaningful impact. For our part, as a market conduct regulator of the financial sector, the FSCA has been actively promoting consumer education, a commitment that dates back to the time of our predecessor, the Financial Services Board.

This included the establishing of the National Financial Education Foundation to fund and enhance financial education initiatives across the country, as well as rolling out various financial education and literacy programmes. The introduction of the Twin Peaks model of regulation through the Financial Sector Regulation Act 2017 has further elevated our role, placing financial education at the core of our mandate. This is based on the recognition that financial education is not just an add-on to consumer protection. It is fundamental to it.

Empowering consumers

Our strategic approach centres around empowering consumers through direct financial education while ensuring that the financial education provided by financial institutions is appropriate and beneficial to consumers. We appreciate the feedback we’ve received from stakeholders on our financial consumer education conduct standard, which will be finalised and implemented hopefully later this year.

The intended outcome of this approach is to create empowered consumers, individuals who understand their rights, are knowledgeable sufficiently about financial products, and are better equipped to recognise fair and unfair treatment. While we are doing good work in this area, we recognise that we cannot do it alone. The role of financial institutions is crucial. These institutions are on the front lines. They directly interact with consumers and shape their financial behaviours and decisions all the time.

However, the commitment to financial education should not be reduced to a checkbox for compliance with the financial sector code, which requires 0.4 percent of annual net profit after tax to be spent on consumer education, nor should it be seen solely as a matter of corporate social responsibility or as a way of creating awareness of specific products and services. Both approaches fall short of making a meaningful impact, as they often prioritise compliance or marketing over genuine consumer empowerment.

Financial education should be embraced as a business imperative, one that, when invested in adequately, can build trust, enhance customer loyalty and ensure long-term sustainability. A well-informed consumer base is more likely to trust the financial institutions they interact with, leading to stronger customer relationships, fewer financial mishaps, and a far more resilient financial sector. I want to acknowledge and commend those institutions that have already recognised this and have adopted an approach that treats financial education as a business imperative.

Without the proper foundation, our collective efforts to enhance financial literacy won’t reach their full potential. As such, the education sector is key to laying this foundation by integrating financial education into the curriculum and introducing young people to financial concepts as early as possible. I want to acknowledge the important work that the Department of Basic Education has been doing in collaboration with other stakeholders to incorporate financial education into school curricula.

As we embrace a unified approach to education, it is crucial that we also tap into technology to expand our reach and make our impact bigger.

South African Financial Education Commitment Charter

The conclusion of the summit saw the drafting of a charter to guide financial literacy in the industry. There are five proposed commitments on the table:

• Adopt a Financial Education Plan for the organisation that is Board approved and published.
• Deliver targeted financial awareness and financial education programmes in line with the published approach.
• Deliver financial education in line with best practice norms and standards.
• Strive to increase the impact of financial education programmes.
• Prioritise the financial wellness of customers. CEOs and other decision makers have three months to consider all the information they received and to provide input by 28 November 2024. The final draft will be distributed by February 2025, and the Charter is expected to be signed by 28 May 2025.