Is Financial Inclusion Too Expensive For South Africa?
Money worries abound in South Africa where financial inclusion poses some challenging queries from the nation. From exactly what the president is spending “his” money on, to the nation’s recently downgraded credit rating, there’s a lot to be concerned about when it comes to finance in the country.
These big picture issues, of course, trickle down to everyday South Africans, affecting individuals across the country’s wide socio-economic divide where they mingle with pre-existing problems. Problems, for example, like poor financial education, low levels of saving and very poor financial inclusion. When these big picture and persistent low-level problems collide, it could be a recipe for economic disaster.
When it comes to financial literacy and inclusion, South Africa ranks far behind other developing nations. Just 70% of citizens have access to a bank account, with 30% of the population operating without one, making South Africa a predominantly cash based society. When ranked globally in terms of financial literacy too, South Africans repeatedly score poorly, placing the nation at the bottom of the pile, even within Africa.
This lack of financial knowledge is reflected in the recently published Financial Literacy in South Africa report, conducted by HSRC for the FSB. Although the report attempts to take a more hopeful tone, the statistics speak for themselves. Of the representative sample of 3,000 citizens aged 16 years, only 37% claims to pay their bills on time, while 69% stated that they did not have an emergency fund or any rainy day savings, likely because a mere 50% claimed to be actively saving money.
Help is expensive
So far so troubling, but is hope on the horizon? Many believe that South Africa simply can’t afford to educate its population or develop suitable products which will give everyone access to banking and financial services.
While charities and organisations work to run initiatives, even financial service providers are working to improve financial literacy in the country by developing digital educational resources. The Government, however, are yet to develop a strategy which will see financial literacy taught in all schools across the country, or push banks to invest in more appropriate, accessible financial products.
Currently many South Africans use unofficial, informal financial services, many of which mean higher interest rates and can even leave customers in danger, with no recourse to an official body. From loan sharks (mashonisas), to grassroots credit unions, more accessible “formal” finance must be extended to the whole population to protect everyone’s financial interests and futures.
So what’s standing in the way? For starters, the cost of developing and rolling out such a system will most likely prove costly. While many hoped digital products would help fill the gap, lack of digital accessibility and a high level of digital skepticism amongst many in lower socio-economic groups, particularly in rural areas, mean that solution is much less simple.
According to Hollard Affinity and Direct Insurance managing director, Mandla Shezi: “We need targeted savings products that offer flexibility and allow for emergency withdrawals without penalties”. Without Government backing, this will not be possible any time soon.
What will it take to improve financial inclusion and financial education in South Africa? Have your say below.