It is critical to address financial literacy – the ability to understand financial concepts and make basic financial calculations – in order to increase financial access in South Africa. The country has one of the highest levels of income and wealth inequality in the world, and financial literacy skills are underdeveloped, affecting people’s decisions about how they spend, save, borrow or invest.
According to a 2019 National Income Dynamics Study (NIDS) discussion paper, just over 40% of South Africans are financially literate, which is similar to the S&P FinLit Survey estimate of 42%. This worryingly low figure indicates that more needs to be done to help ordinary South Africans understand money and make better financial decisions.
Why is financial literacy important?
Financial literacy improves financial access and provides people with more tools to be more economically active. It can also protect people from becoming victims of financial fraud, from accumulating unsustainable debt, and from making poor financial decisions that lead to negative consequences in personal lives and for businesses.
Research and insights into South Africans’ financial literacy
Momentum and the University of South Africa (Unisa) have been releasing the results of their scientific study into household financial wellness in South African households for over a decade. The aim is to understand the state of South Africa’s financial wellness and success in order to guide effective advice and interventions in financial wellbeing.
Financial Literacy Around the World: Insights from the Standard & Poor’s Ratings Services Global Financial Literacy Survey
This 2015 study indicates that only one in three adults is financially literate globally. “Not only is financial illiteracy widespread, but there are big variations among countries and groups. For example, women, the poor, and lower educated respondents are more likely to suffer from gaps in financial knowledge. This is true not only in developing economies but also in countries with well-developed financial markets,” the study says.
In the BRIC countries, on average, 28% of adults are financially literate, but disparities exist as 42% of South Africans are literate, whereas only 24% of Indians fall into this category.
These reports are part of the ongoing study of financial literacy in South Africa and their objective is to provide the Financial Services Board (FSB) with information about the financial knowledge, attitudes, skills and behaviour of adult (aged 16 and older) South Africans. The surveys are conducted by the Financial Sector Conduct Authority (FSCA) in partnership with the Human Sciences Research Council (HSRC). The surveys have been conducted in 2012, 2013, 2015, 2017, and 2020. In 2020, declines were reported across financial control, financial planning, product choice, and financial knowledge. The South African financial literacy score reported was only 52 out of 100.
The 2016 OECD/INFE International Survey of Adult Financial Literacy Competencies questioned 50,000 people including 2,813 South Africans aged between 18 and 79. South Africa was not a participant in the 2020 survey.
The research paper ’Financial literacy and youth entrepreneurship in South Africa’ assessed the level of financial literacy and impact on youth entrepreneurship in South Africa among youth entrepreneurs in the Vhembe District of the Limpopo Province, South Africa. The paper reveals that financial literacy among youth entrepreneurs in the Vhembe District appears to be above average and contributes meaningfully to their entrepreneurship skills.
The use of financial literacy concepts by entrepreneurs in the small and medium enterprise sector in Mpumalanga Province, South Africa
Financial literacy is one of the key factors that impact on the success of small and medium enterprises (SMEs) globally. The objective the research project from the Gordon Institute of Business Science, University of Pretoria, is to understand the extent to which entrepreneurs in the SME sector pursue the financial literacy concepts, namely, budgeting, investing and borrowing in managing their business finances. The study also aims to establish the relationship between the use of financial literacy concepts and performance of the SMEs. The results showed, among other things, that there is a positive relationship between the use of financial literary concepts and SME’s economic success.