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BUSINESS NEWS - South Africa has a well-developed and regulated formal financial sector but it continues to be plagued by low levels of financial literacy which is driving poor financial decisions. 

The result is that despite a growing middle class, South Africa continues to rank high when it comes to indebtedness, with consumer debt surging to R1.9 trillion from January to March last year.

As well as high levels of borrowing, South Africa is also plagued by low repayment levels, with R4 billion of borrowing currently in default. 

That suggests that although levels of financial inclusion are high, with most consumers able to access formal financial services, financial literacy levels are low. And, with consumers continuing to make poor borrowing decisions that are creating repayment problems, there are calls for the lenders themselves to become a source of financial literacy.

What is financial literacy and how can lenders help?
Financial literacy is all about understanding basic financial pillars such as budgeting, saving, borrowing and investing so that consumers can make more informed decisions and manage their money better. That can help them establish a feeling of control over their finances and make considered choices that enable them to achieve their long-term goals. 

Lenders are one of the few financial touchpoints that many consumers have contact with. That’s why Brett van Aswegen, CEO of the online loan provider Wonga, believes the lenders themselves should help to strengthen consumer behaviour and empower borrowers to make better financial decisions.   

The responsibility of responsible lenders

Although there are many financial education initiatives currently being implemented by institutions across South Africa, many of those programmes are poorly coordinated and suffer from low levels of participation. The result is that the less financially literate continue to accumulate long-term debt and often struggle with their repayments. 

The solution, as touted by Van Aswegen, is for the lenders to:

“Identify entry points to improve financial literacy as a stepping stone towards financial soundness.” 

This should be seen as an opportunity for lenders to differentiate themselves as ethical and responsible lending institutions that employ practices to help protect and inform consumers.

As well as conducting the affordability assessments that are required by South Africa’s National Credit Act, lenders can provide free resources that give consumers a clearer view of their unique financial requirements.

They can also educate them about the products and services that are available along with their rights as financial consumers. Wonga’s Money Academy project is one such endeavour helping to lead the way.

What are your experiences with financial literacy? Where do you get your financial information from? Please share your thoughts with our readers in the comments below. 

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