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Assessing our financial literacy

Oct 15 2015 15:00
Vanessa Bell

Picture: Lucky Nxumalo/City Press

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The shock headline statistic is that interventions to improve financial literacy have a mere 0.1% impact on changing financial behaviour and consequently a negligible effect on achieving better financial outcomes.

The funding of financial education initiatives is the easy part. Under the Financial Sector Code, financial services firms may apply 0.4% of their net profit after tax to financial education for scorecard points and in terms of the revised scorecard, 0.5% expenditure has the reward of a bonus point.

And of course let’s not forget the variety of self-motivated incentives driving corporate expenditure on financial literacy initiatives. 

So if money is not the obstacle, what is? Getting it right is.

To begin with, the concept of financial literacy is difficult because of the lack of a common definition. Opinions vary greatly as to whether the definition should include behaviour and attitudes as well as knowledge.

The lack of a common definition has the knock-on effect of there being a number of divergent and inconsistent methods of measuring financial literacy.

The importance of measurement should not be underestimated. It matters because, if the many millions of rand spent on financial education each year don’t deliver, then it’s money that might as well be flushed down the proverbial toilet.   

The good news is that there is now a whole lot of guidance out there. And all the right steps in the right direction have been taken towards a consistent measurement framework.

There has been significant development in research on a global level such as the Organisation for Economic Cooperation and Development’s (OECD’s) multidimensional International Network on Financial Education (INFE), which provides a publicly available survey database of financial literacy information.

Locally, our Financial Services Board (FSB) has been doing significant work since 2010 when it commissioned a pilot study on financial literacy as part of its Consumer Education Programme.

The stated goals are to eliminate irresponsible financial behaviour and improve the quality of life for all South Africans – regardless of class, race or creed – by increasing the levels of financial understanding.

This is an except from the 20-page Collective Insight supplement in the 22 October 2015 edition of finweek. Buy and download the magazine here.

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