Financial inclusion is a global problem, and is not unique to South Africa. There is a rapidly widening gap between the economic classes, where the rich are getting richer and the poor are getting poorer. Several solutions have been proposed in attempts to ratify the ongoing problem, radical economic transformation, land reform, and economic growth. These are all relative suggestions, but why not start with the basics, financial education?
Financial education, is as the name suggests ,it is education that relates to finances and how money works.Mainly focusing on how to make money actively and passively, how to keep money through saving and budgeting, and fundamentally how to further grow the money that you make through investing and financial planning. The objective of financial education is to empower people with the necessary skills to gain control over their financial future. It will always leave me bewildered how we manage to leave something as critical as financial education from the mainstream education system, and expect people to become effective participants of the global economy? This is something we definitely have to reconsider .There are millions of people who have no clue about the financial markets and as a result cannot participate in them, and this is not for a lack of interest.
Ask yourself this, how can anyone possibly invest in stocks, mutual funds or ETFs if they do not even know such investment vehicles exists? By the time they become familiar with these investment options they do not have a healthy relationship with money to engage effectively in the market. The lack of financial inclusion flows from the lack of financial education. Financial education needs to be of paramount importance, and it can no longer be marginalised.
The National Creditor Regulator has stated that South African consumers owe over R1.66 trillion in debt, and on average most South Africans owe approximately R274 000 to creditors. According to 1LifeInsurance they deduced that on average most South Africans owe 72% of their pay check to creditors, therefore for every R100 they earn, R72 goes to creditors. Most South Africans live pay-check to pay-check, or even more concerning some supplement their living expenses with credit. The dangerous debt culture in South Africa can be rectified through financial education.
Financial education has broader implications that the effects on personal financial management, it also impacts the economy holistically. Financial education encompasses the skills to understand how money works in relation to both personal finances and business finances. In marginalising financial education, we also rob people of the fundamental skills to be successful business owners and entrepreneurs. Consequently, we evaporate the market of employers who will create jobs and facilitate sustainable economic growth which is desperately needed to maintain , grow and create a vibrant economy.
Through financial education people are empowered to make well informed financial decisions and gain control over their financial future. They will not be slaves to debt, but emancipated by skills to effectively save and invest their money. The benefit of financial education is that it re-focuses the mind of an individually from purely a consumer, to that of a entrepreneur. They are now interested in generating several streams of income, and this leads to creative thinking and the generation of innovative businesses. The best thing of all is it changes the dynamics from where people are victims of the economy, to where they can be influential participants in the economy and contribute towards and benefit from its successes. The current problem we have is that because there is such limited financial inclusion, few people benefit from the economy when it does well, and when the economy does poorly very few people are protected because they have a “diversified portfolio” , and have many streams of income, while everybody else is not as fortunate and suffers grossly when the economy performspoorly.
The off balance dynamic can be solved through financial education. We are fortunate to live in a digital era where technology has made entering the markets much easier than before. The administrative and cost barriers have been overcome by technology, with internet connection and a laptop you can buy stocks or start a business. We now need to prioritise financial education by using the powerful tool of technology to further the agenda of financial inclusion through financial education.