Looking at South Africa’s asset to GDP ratio, the country has a large and advanced financial sector compared to other emerging markets. It boasts excellent technology with access to a variety of digital products that have over the years made life convenient for consumers. However, it cannot be ignored that South Africa is one of the most unequal countries in the world, with the gap between the rich and the poor getting wider by the day. Its financial sector is also a reflection of this. The question would then be which client base benefits from these advancements? Do these products and services bring convenience to everyone in the country or only a few? Does the Financial Planning Standards Board Ltd. (FPSB) consider the different settings when proposing and introducing standards or is South Africa just meant to fit into a global North model that further exacerbates the conditions already present in the country? This paper provides a critique of the current proposed standards by the Financial Planning Standards Board in the context of South Africa.
Financial literacy can be defined as one’s ability to make informed decisions about how they spend and manage their personal finances. Importantly, financial literacy is about making long- term financial plans that will lead to a more comfortable life even in the event of an unforeseen circumstance in the future. Being financially literate (Knaack and Jones 2019 ) means possessing the knowledge and skills to be able to make effective financial decisions about managing credit, investments, savings, cash flow management, and planning for retirement (Kalmi, et al. 2021, 508).
The Financial Planning Standards Board has never really taken into consideration the different settings in which the implementation ought to take place. Jones and Knaack (2019) argue that the international system has a two-tier hierarchical structure that vests all important decision- making power in the big powers of the international system and continues to marginalize the less developed countries. The problem arises when the international standards adopted do not align with the conditions in the local context of these developing countries (Knaack and Jones 2019 , 193). Public officials in the periphery find themselves having to implement certain unfavorable international financial standards from the core in order to maintain healthy relations as that leads to greater incentives (Knaack and Jones 2019 , 194).
However, these implementations do not look at the conditions and situation in the peripheral context instead most of the time the periphery is forced to fit into a model that is not favorable to suit its experiences. South Africa is a good example of this, while the Financial Planning Standards Board has been successful in the North, it hasn’t been in South Africa. Maybe what needs to be considered are the conditions that allowed for successful implementation in the North which are not present in South Africa.
In an attempt to bring about financial literacy to people from all walks of life and age groups, the American Institute of Certified Accountants which in South Africa is equivalent to the South African Institute for Chartered Accountants implemented the 360 Degrees of Financial Literacy Programme. Newly qualified Certified Public Accountants had to volunteer to teach Americans about the importance of responsible financial management. Children were also included in this programme which meant that by the time they got to their adult years, they would understand what it means to make healthy financial decisions. This would lead to many of them having a better chance of retiring more comfortably. “The aim of this programme is to encourage all certified public accountants to assume a leadership role in volunteering to educate the American public, from school children to retirees, on financial topics that apply specifically to their particular stage of life” (AICPA 2007).
Furthermore, the Council for Economic Education (CEE) and the Jumpstart Coalition for Personal Financial Literacy came up with the National Standards for Financial Education. Recognising that children might not all have access to the financial education they need to get at home as a result of the different backgrounds that they come from, financial education was taken to the classroom. This ensured that even students from disadvantaged and other backgrounds were exposed to the topic of personal financial management. It covers kindergarten to 12th grade education where the finance curriculum progresses as the child moves up the grades. It touches on different aspects including, earning income, spending, saving, investing, credit management, and risk management.
According to the 2020 CEE Biennial Survey of the States, 45 states recognise the importance of including personal finance in their education curriculums and 24 states consider it mandatory to have a personal finance course offered in high school (National Standards for Financial Education 2021).
The case of America proves beyond reasonable doubt that financial literacy is a practice that is taught from kindergarten to adulthood. The standards introduced by the Financial Planning Standards Board are there solely for the purpose of cementing existing foundations that have already been well layered. The people in the global North are exposed to personal financial management and the need to be financially independent because it has been normalised. The proposed standards serve to advance and build on the knowledge already learned and acquired through lifelong learning. However, this is not the case for South Africa, where the sole purpose of the government has been to grow the economy while its people get left behind due to adopting unfavorable financial standards which greatly disadvantage them. There has never been any focus on national plans that will bring about financial literacy amongst the population; but this is probably because there is no financial inclusion to begin with. How are the proposed standards going to benefit the South African financial sector when the current standards only benefit a select few? Can we safely say all the people in South Africa are able to make informed financial decisions? Only the minority would agree that these standards have benefited them.
South Africa might have a sophisticated financial sector but that does not change the fact that it is a developing country with the majority of its citizens following under the low-middle income bracket. The Financial Planning Institute was established in 1981. However, it seems there is still a long way to go when it comes to achieving financial literacy for all people. To substantiate this point, a 2012 Human Science Research Council report will be compared with a 2022 Financial Sector Outlook Study. In the year 2012, the Human Science Research Council conducted research on the level of financial literacy in South Africa on two thousand nine hundred and seventy-two South Africans. This research focused on people living in households and hostels who were 16 years and older. The study started by investigating the extent to which South Africans monitor their finances. Of the people interviewed 32% did not monitor their finances, 37% did to some extent, and 27% kept a close eye (Roberts et al., 2012). When asked about financial planning and emergency funds in the event of unforeseen circumstances, it was found that two-thirds would not be able to sustain themselves for even 3 months (Roberts et al., 2012). Coming to investment and saving, the findings were that 55% had no investment or savings while 41% had at least one of the two. About 69% of South Africans know more about life insurance than other types of insurance. When asked about sources of information for the products and services taken out, the majority were reliant on social media, friends, family, and television adverts (Roberts et al., 2012).
When comparing this with the 2022 Financial Sector Outlook Study, the years 2015-2022 saw an increase of 3% CAGR in gross written premiums. Out of the millions of South Africans, only three in five have some type of insurance cover, with funeral cover being the most held. The total percentage of adults who claim to have insurance is 42% while excluding funeral cover, we see a dramatic decrease to 19%. Even though the country has recorded a significant increase in bank account ownership, there has not really been much accessibility to banking products and the latest technology as the 2021 Finscope survey found that there were about 40% of dormant accounts held by low-middle income earners. 19% of those accounts were found to be mailbox accounts. While usage amongst high-income earners was around 72%. ‘Accessing’ financial institutions according to South Africans is transacting, receiving, and saving. The lack of accessibility to resources has led to poor saving methods where South Africans find themselves resorting to stokvels instead of going the formal route of financial planning (Financial Sector Conduct Authority 2022). “Stokvels are primarily used for savings; 20% of stokvels are specifically set up for bulky grocery purchases, 25% are set up to cover funeral or burial costs and 45% are structured as rotational savings clubs” (Financial Sector Conduct Authority 2022). When looking at retirement, it was found that there is an estimated R42 billion that is unclaimed and owed to approximately five million individuals (Financial Sector Conduct Authority 2022).
Careful analysis of the two papers shows that financial literacy in South Africa is an urgent need and the standards currently implemented and proposed by the Financial Planning Standards Board are nowhere close to helping the country achieve that. The statistics have highlighted that there is still a great number of people who do not know or even understand what financial planning is. In 2012, people rarely kept track of their spending as mentioned
above. This was already 31 years into the establishment of the Financial Planning Institute. Not much changed even 10 years later. If there are mailbox accounts where money is withdrawn immediately after being received, then people are living from hand to mouth with no hope of breaking out of the ‘next paycheck curse’ or even retiring comfortably. The Financial Planning Institute together with the CFPs and other financial institutions on financial management have not done much to change low-middle-income South Africans’ perceptions of investment, savings, and retirement. The amount of unclaimed retirement funds is another way in which we can be able to see this. It simply means that low-middle-income South Africans wake up every single day with no knowledge of comfortable retirement. The same trend instead continues where one lives off a wage and at retirement age, they add on to the number of social grant recipients. If people remain clueless about such things, then the government will continue to feel unnecessary pressure which could otherwise be alleviated by teaching people about pension fund contributions and personal retirement savings. This is a grave disadvantage to low-middle-income South Africans while the government seeks to adopt policies that the country clearly is not ready for. The harsh reality is that the introduction of these international financial policies that benefit the minority leaves the majority getting further left behind and left to fend for themselves in this unequal system. This is evident in how the shift to advanced technology and digital products during the COVID-19 pandemic greatly disadvantaged the underprivileged who lack the resources to access them. The problem is whatever the international financial system adopts, the periphery is expected to adopt it with little to no consideration of its impact on the majority.
The first recommendation would be that CFP training should be done based on the country’s specific experiences. There needs to be more autonomy for a country to implement what will work for them. If what will work is amongst the prescribed standards then great but if not, then the country needs to do away with standards that do not work for them and work with only those that will work for them. The only way this can be done is if academics, economists, and other relevant professionals within the country do research and provide prescriptions on what could suit the current conditions. The training of CFPs should fit the situation faced by the country. There is the idea that theory is for everyone and everywhere. It is about time we accept that is not the truth. In the past few decades since its establishment, the Financial Planning Institute has been pushing a global North agenda that has not been serving the country. That needs to change. CFPs in South Africa should be trained according to the people they are going to serve. In this case, we are talking low-middle income households who need to be taken back to the basics of financial literacy not be forced to advance with the times while in actual fact they are getting left behind. CFPs can help raise awareness of the benefits of banking (as there are individuals who still remain unbanked), savings, retirement, insurance, and managing finances well. CFPs in South Africa need to get the low-middle income households to have faith in the formal banking system by winning them over. This can only be done by teaching people financial management and giving them the satisfying feeling of returns on their investments.
Secondly, there needs to be a CFP volunteer work component added to the qualification criteria. CFPs can do research on how to reach a wide low-middle income household audience and teach them the basics of financial literacy. Targeting the semi-skilled, unskilled, students, and adults in South Africa. This volunteer work should be their entry ticket to the world of work. The current qualification criteria has financial advisor experience, that can be replaced with volunteer experience considering that unemployment is also another problem in South Africa. This will make it easier for more CFPs to be able to enter the world of work after completing their volunteer work instead of waiting to get financial advisor experience that they might never get while at the same time low-middle income households get access to qualified professionals in the financial sector without having to spend money that they do not have.
Thirdly, it would also be recommended that CFPs come up with a framework that will ensure lifelong learning in schools and the workplace. Adult South Africans were not exposed to topics such as financial literacy so it would go a long way for a framework to be introduced even if it is in the form of workshops or a course for student and employees to understand how to manage their finances. The next few decades would see a significant increase in financial literacy if this had to be done. For employees, they would start building towards saving up for retirement and even knowing about their pension fund contributions. This would also strengthen South Africans’ faith in the banking sector and people would start using bank accounts to keep their money and not constantly carry cash. There would be more investments and less stokvel clubs as people would understand that the bank is not there to steal their money. It all starts with a change in perception.
In conclusion, the revised standards do make sense for a developed setting where a majority of the people are financially literate and possess the skills and knowledge to be able to manage healthy finances. These standards only serve to cement knowledge which foundations have already been laid. However, when looking at South Africa, with a majority of low-middle income households who have never been exposed to such concepts as financial planning, there is no way they can be able to benefit. CFP training in South Africa needs to take a more different approach which is inclusive of the middle-low-income earners. They make up the majority, but the system does not cater to them. CFPs currently only cater to the top 10% while the rest of the South Africans are left trapped in cycles of poverty with no guidance about how to build a more promising future by making informed financial decisions. It is about time that South Africa came up with an inclusive model that will leave no one behind. If financial literacy can be achieved for the majority of people, then better financial decisions can be made that will lead to confident and independent individuals with better financial management. This will reduce dependency on the government hence allowing the country to better develop. This will enable international financial standards to also be adopted and implemented successfully where the majority benefits.
In summary, financial inclusion matters not only because it promotes growth, but because it helps ensure prosperity is widely shared. Access to financial services plays a critical role in lifting people out of poverty, in empowering women, and in helping governments deliver services to their people. If you don’t understand the language of money, and you don’t have a bank account, then you’re just an economic slave. Without financial literacy, divorce rates soar, families rupture, and women stay with abusive men for financial security. A lack of jobs contributes to riots and illegal activity. Name any situation and it goes back to money. We need to focus on poverty eradication. It’s pretty much how we get anything added to the curriculum. When parents said children needed to be computer literate, the schools started responding. The same thing is true of basic financial literacy.