Majority of South Africans do not understand how money works

A new survey shows that less than half of South Africans can be considered financially literate – well below the average of advanced economies, but ahead of the global average.

The survey of more than 150,000 people in 140 countries, commissioned by Standard & Poor’s, and conducted Gallup, GFLEC, and World Bank, found that as few as 33% of the world’s adult population are money-smart.

Respondents were tested on their knowledge of four basic financial concepts: numeracy, interest compounding, inflation, and risk diversification.

Financial literacy is the ability to understand how money works in the world. It refers to the set of skills and knowledge that allows an individual to make informed and effective decisions with all of their financial resources.

The study found that the US, with a financial literacy rate of 57%, trails behind countries such as Germany, Israel, New Zealand, and Norway.

Globally, there is a five-point gender gap, with 35% of men being financially literate compared with 30% of women.

In the US, men’s financial literacy averages 10% points higher than women’s. Notably, in China and South Africa did not have a gender gap.

South Africa’s financial literacy rate is put at 42%, which is ahead of its BRICS counterparts.

The so-called BRICS (Brazil, the Russian Federation, India, China, and South Africa) on average, have a 28% financial literacy rate.

Additional findings from the S&P Global FinLit Survey include:

• 61% of adults in China do not save for old age. About 72 percent of those non-savers have low financial literacy, according to the survey findings.
• About 47% of adults in India – 415 million adults – lack a bank account.
• Roughly 80% of those without bank accounts have weak financial literacy.
• There is wide variation in financial literacy rates across economies in Sub-Saharan Africa. At 15%, Angola and Somalia are among the countries with the world’s lowest financial literacy rates. At 52%, Botswana’s rate is the region’s highest and comparable with the average of high-income OECD economies.

“Without an understanding of  basic financial concepts, people are not well equipped to make decisions related to financial management. People who are financially literate have the ability to make informed financial choices regarding saving, investing, borrowing, and more,” the report said.

Financial ignorance carries significant costs, it added. “Consumers who fail to understand
the concept of  interest compounding spend more on transaction fees, run up bigger
debts, and incur higher interest rates on loans. They also end up borrowing more and saving less money,” it said.

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