Your fat salary and fancy
degree don’t make you money-wise

As part of its Science of Success festival, Momentum is releasing its Momentum Unisa Household Financial Wellness Index for 2023. For the twelfth year in a row, this report is showing South Africans how to make money moves and achieve financial success. This year there is a particular focus on the difference financial literacy can make in being successful with money and building wealth.

The report defines financial literacy as knowledge and understanding of various financial concepts and practices. It also points out how important it is to have the confidence to make the right decisions about one’s money.

If you know what you’re doing, you can make informed and thoughtful decisions.

Johann van Tonder, an economist in the Group Strategy team at Momentum who did much of the research for the report, explains people who know about money make better choices regarding their budgeting and spending. They are also better at more complex decisions like saving for retirement and investing.

In my years in financial services companies, I’ve realised that many people believe they will be okay if they earn a decent salary with their privileged education. But I know doctors and scientists, very smart people, who often make the wrong money decisions. I’ve made some myself. I’m afraid that financial advisers will tell you that even entrepreneurs who earn the healthy fruits of their labour are not always clever about money.

The Momentum research measured people’s financial literacy by looking at their knowledge of financial calculations and reasoning. For instance, can you calculate interest, do you know what inflation is and do you know how to reduce the risk of losing your money when you invest?

The report shows that South African households in general overestimate their knowledge of personal finance. It shows 45,7% of households think they are financially literate, but only 15% are. The report points out how dangerous it is that 85% of people don’t know enough about money and may make money decisions that harm them. In fact, 90,6% couldn’t even make basic financial calculations. They can’t calculate how much their debt is costing them or how much they earn when they invest. A total of 68,5% couldn’t answer questions to evaluate their financial reasoning correctly.

What is also scary, is that 87% of people seem to rely on their own knowledge, online resources or family and friends when making financial decisions. A mere 10% consult professionals with the necessary knowledge.

Getting back to education, just more than 20% of graduates and post-graduates are financially literate. The report explains that the Financial Sector Conduct Authority has determined that 50% of graduates “don’t enjoy dealing with financial matters”.

But maybe the most revealing facts are regarding income. The report shows most financially literate people are in the income group earning up to R60 000 a year, or R12 000 per month. And wait for the figures on what most of us would regard as “the wealthy”: Just more than 10% of households earning more than R840 000 per year (or R70 000 per month) are financially literate.

The report points out that many of these high earners are more indebted, are bad at managing their finances and are often guilty of instant gratification. They think they can afford to just splurge.

I can only agree with the findings pointing to how dangerous it is for individual families and society at large if we aren’t stewards of our income. That said, I am also a firm believer in treating yourself when you have earned it and can afford it. But if you earn a decent salary, and have an education, financial wellness should be within your reach.

It seems a small price to pay to brush up on your school maths and spend 10 minutes every day on improving your financial knowledge. Switch on the radio or browse online. You’ll thank yourself for the results, and so will your family.