How financially literate are you – really?

Published on 24th April, 2023 at 03:09 pm

Many people hear the term ‘financial literacy’ and their minds immediately jump to mathematics, but it’s about more than just numbers. It’s about understanding how money works, and how to manage it effectively. You may know this in principle, but do your financial choices reflect this? Read on to find out how you score in your financial literacy, and ways to improve it.

Reading time: 3 minutes

In this article you’ll learn:

• What financial literacy is, and why it’s important to making a financial success of yourself.
• Signs that you may have a gap in your own financial literacy.
• How Sanlam Credit Solutions, the savings calculator and a meeting with a financial planner can help improve your financial literacy.

What exactly is financial literacy?

The four commonly regarded principles of financial literacy are investing, budgeting, saving and debt.

According to Danelle van Heerde, Head of Advice Solutions at SanlamConnect, South Africans are typically not very financially literate. You don’t need to look further than the low savings rates, high household debt and the fact that only 5% of South Africans can maintain their lifestyle once in retirement to see the symptoms of this. Financial literacy’s likelihood of being passed on through generations largely sits with parents and other family members. Van Heerde explains: “If parents are not financially literate, their children will not have an example to learn from.”

Have you developed or inherited some habits that show a gap in financial literacy? Ask yourself if these statements apply to you:

Your income seemingly disappears before you can invest

It is important that you know how much money you have in your bank account and a clear understanding of how much you spend each month. If you don’t, you’ll be unable to start saving and making investments. Van Heerde suggests keeping a money journal, which will show you exactly where your money is going every month.

Up to 49% of South Africans are financially illiterate. According to van Heerde, this often presents through the lack of an emergency fund to use for unexpected expenses, or not having started saving for retirement or other financial goals. By creating a budget and list of your ad hoc expenses, you can start to identify potential areas in which to save so that you have room in your budget for short- and long-term savings.

Want to start saving? Use this tool to make it easy! Plus, you can earn 1 000 tier points!

You think your credit score can’t change

Your credit score is an indicator that lenders use to determine the risk associated with lending to you. If you have a poor credit score, future credit applications could be declined, or you could be offered an unfavourable interest rate on credit agreements. The good news though? It’s not a fixed number. You can improve your credit behaviour and, over time, your credit score.

To find out your credit score, you can register for Sanlam Credit Solutions for free. Conveniently check your credit score, credit history and recommendations all on one dashboard.

Van Heerde says, “Many use debt to pay for everyday expenses, and only pay off the minimum amount on their credit cards at the end of the month.” She suggests reviewing your debt; try to only use good debt that will improve your financial situation – for example, buying a house or taking out a student loan. Pay off expensive debt as quickly as possible and focus on paying off your credit card in full every month.

Dubious schemes tend to seem more attractive than legitimate investments

Instead of jumping on the next get-rich-quick scheme, Wayne Hutchinson, managing director of Berghshire Wealth BlueStar, authorised by Sanlam, says investing should always be a long-term activity if you are aiming for financial wellbeing. Another mistake people make is merely saving in a stock standard bank account, instead of investing in assets that truly grow in value.

“Aim for assets that offer exposure to compounding interest, because the longer you are in the investment, the more growth you will enjoy. The longer you invest, the more you even out risk in your portfolio,” he explains. Hutchinson also discusses how building a property portfolio and renting out property is worth consideration, as tenants can help to pay off your investment through the rental income. “With high interest rates, you can yield good returns [with property],” he adds.

Partnering with a financial planner to review your debt, retirement plan, existing savings and investments can help ensure that all your financial goals are taken into consideration, and that you are using appropriate solutions to reach them. By taking these steps towards financial literacy you can take control of your financial future!