A look at young people and their attitude towards money and how to improve their finances

For many years, young people in South Africa have experienced and faced many challenges regarding them completing their education which has resulted in extreme unemployment rates and is one of the key challenges facing our society and necessitates.

A recent study conducted by Momentum in partnership with UNISA, The Momentum UNISA Financial Index reveals that although the youth is experiencing a lot of challenges, the one opportunity they have is benefit of time – if they could grasp the benefit of saving consistently (even if it is small amounts) in the right financial products, it could generate positive financial outcomes for them in time through the magic of compound interest.

Although June is traditionally Youth Month in South Africa, we strongly recommend that every day should be Youth Day and that as a collective, we should support young adults with the relevant financial education and appropriate financial products to assist them in their journey towards financial success.

Some of interesting findings in the Momentum UNISA Financial Wellness Index:

Financial literacy: over-confident but not over-literate

Based on their high level of self-reliance, one would expect a high level of financial

literacy among the youth. However, a very basic financial literacy assessment (Based on a five-question measurement instrument), revealed a very low average financial literacy score of 36 out of 100 for both groups. The confidence in their own abilities exceeds their actual abilities by far, which may contribute to wrong financial decisions. This over-confidence is further reflected in a self-evaluation of their financial knowledge and skills in personal financial management

For both age categories, more than 60% deemed that they have satisfactory to excellent financial knowledge and skills. However, their financial literacy scores were not higher than 40 out of 100 based on a very rudimentary financial literacy knowledge assessment. This over-confidence in their own abilities need to be addressed for them to realise that they need to engage with professionals when needed, but also to invest in their own financial education so as to empower themselves.

An appetite for digital engagement

The youth segment seems to be quite willing to engage via a digital platform but they also have a high level of trust in those that they are engaging with. Given their low levels of financial literacy and the high occurrence of financial fraud and phishing, their high levels of trust in digital platforms should be supported with secured and trustworthy digital platforms that provide sound financial education so as to ensure they have the necessary knowledge and skills to avoid becoming victims of financial crimes.

The young adults of South Africa do understand that a financial plan requires a variety of goals and activities. However, it seems as if they are not following their own advice. Furthermore, their level of over-confidence in their own financial management knowledge and skills is not reflected in a basic financial literacy assessment.

In order for them to achieve financial success and become financially well, the well-seasoned but still relevant principles of George S. Clason in The Richest Man in Babylon (1926) (first published more than ninety years ago) will go a long way.

If the youth can adapt and implement Clason’s simple rules to wealth accumulation (paraphrased here) it will assist them greatly on their journey to financial success:

Do not spend more than what you earn – if there is still money left over at the end of the month, invest this to grow your wealth.

• It may take a mindset change to not fall foul of instant gratification and spend on wants rather than

needs or not saving before acquiring expensive items. Make sure you know where every cent goes.

• Ensure that your savings are invested in the appropriate financial products that will deliver a good return. This will provide you access to the eighth wonder of the world, compound interest. Let your money work for you and not you for your money. Start as young as possible to save, even a small amount a month has the potential to become much more over time.

• Take note of the old saying – “if something is too good to be true, then it probably is”. Be careful about who you take financial advice from and take ownership of your financial journey by empowering yourself with knowledge and skills to safely navigate your finances during good and bad times. Ensure you have informed conversations with those you consult (such as a registered financial adviser).

• In a low interest rate environment, ensure that owning your own home is one of your goals and start saving for a deposit as soon as possible.

• You are never too young to start saving for your retirement. There are a variety of products that allows for a small monthly amount or an annual lump sum investment, use your bonus wisely and invest in your retirement before you spend on the rest of your wants. Also remember that you are your biggest asset – ensure that you have income protection, disability and life cover when needed, especially when you have a family that is financially dependent on you.

• Invest in yourself. It doesn’t have to be a formal qualification, make use of free courses available to equip you with the necessary skills required for the 21st century. Become a life-long learner to ensure you make yourself more appointable than the person next to you.

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