Issued by Ismail Joosub on behalf of the FW de Klerk Foundation on 28/08/2024

Introduction

As South Africa gears up for Money Smart Week South Africa (“MSWSA”) 2024, the FW de Klerk Foundation proudly supports this vital initiative dedicated to advancing financial literacy nationwide. This year’s theme, “Protect your money, secure your future,” underscores the critical importance of financial education in shaping a prosperous and equitable future for our nation.

Financial literacy is not just a skill, it is a crucial component of empowerment – especially for our youth who are navigating the complexities of post-matric funding and student loans. This article explores the intersection of financial literacy with constitutional rights and its broader impact on South Africa’s future, drawing on current research, statistics and analysis regarding financial literacy relation to economic participation.

Financial Literacy and Constitutional Rights

The Constitution enshrines several rights that are deeply interconnected with financial literacy, each contributing to the broader goal of personal empowerment and economic stability.

1. Right to Education (section 29): Section 29 of the Constitution guarantees every citizen the right to a basic education and further education. This right is foundational for personal development and economic participation. Financial literacy is crucial here, as it enables students to make informed decisions about their educational journey, manage student loans effectively and assess the financial implications of different educational pathways. However, the current state of financial literacy education in South Africa is in ruin, impacting the ability of many young people to fully benefit from their educational rights. While basic education is provided, there is a need for more comprehensive financial education to prepare students for the financial realities of further education and the job market.
2. Right to Choose a Trade or Profession (section 22): Section 22 guarantees the right to choose one’s trade, occupation or profession. Financial literacy supports this right by equipping individuals with the necessary skills to plan for and pursue their desired careers. It facilitates informed decision-making regarding investments in education, career training and entrepreneurship. Despite this, many young South Africans face challenges in accessing financial resources and guidance that could help them realise their professional aspirations. The effectiveness of this right is often hindered by limited financial literacy education, which can restrict career opportunities and economic advancement.
3. Right to Human Dignity (section 10): Section 10 of the Constitution ensures that everyone has inherent dignity and the right to have their dignity respected and protected. Financial literacy contributes to this right by promoting economic self-sufficiency and reducing financial stress, which can significantly impact an individual’s sense of dignity. Financial empowerment allows individuals to manage their resources better, avoid exploitative financial practices and achieve a level of economic stability that supports their dignity.
4. Right to Access to Adequate Housing (section 26): Section 26 of the Constitution provides the right to access adequate housing. Understanding personal finances and budgeting is critical for achieving and maintaining adequate housing. Financial literacy helps individuals make informed decisions about home ownership, rental agreements and financial planning related to housing. However, the current level of financial education may not fully equip individuals to navigate housing markets or financial planning related to housing, affecting their ability to fully realise this right.
5. Right to Health Care, Food, Water and Social Security (section 27): Section 27 guarantees the right to health care, food, water and social security. Effective financial management is essential for accessing these basic services and managing the associated costs. Financial literacy helps individuals budget for medical expenses, understand social security benefits and make informed decisions about their health and well-being. Yet, many South Africans struggle with financial literacy, which can impede their ability to secure and manage these essential services effectively.

Despite these constitutional guarantees, the current state of financial literacy in South Africa reveals significant challenges. Many individuals, particularly the youth, lack the necessary skills to manage their finances effectively, which impacts their ability to fully exercise these rights. Financial education is often limited and fragmented and there is a pressing need for more robust and widespread financial literacy programmes to ensure that all South Africans can realise their constitutional rights in a meaningful way.

The Current State of Financial Literacy in South Africa

Recent research underscores a troubling trend in South Africa: Financial literacy is on the decline across various educational levels. According to a 2018 study by development economists Elizabeth Nanziri and Murray Leibbrandt, financial literacy has been deteriorating, impacting individuals regardless of their educational attainment. This decline in financial skills highlights a pervasive issue that affects even those with higher education, suggesting that the erosion of financial knowledge is widespread and deep-rooted.

The Human Sciences Research Council (“HSRC”) corroborated these findings. In their 2021 report, commissioned by the Financial Sector Conduct Authority (“FSCA”), the HSRC reveals a marked drop in financial literacy scores across different demographics, including youth and women. The report highlights that many South Africans struggle with fundamental financial concepts such as interest calculations and inflation awareness. This decline in financial literacy has serious implications, contributing to higher levels of personal debt, increased susceptibility to financial scams and widespread financial distress. These issues disproportionately affect the most vulnerable segments of society, exacerbating existing economic inequalities.

The Importance of Financial Literacy for Post-Matric Studies

Financial literacy is crucial for managing the financial complexities associated with higher education. Recent efforts to address this include the introduction of a R3,8 billion student loan policy aimed at supporting the ‘missing middle’ – students from households earning between R350 000 and R600 000 per annum. This policy represents a significant investment in educational funding, but its effectiveness is currently under scrutiny.

Statistics on Student Funding:

• Between 2019 and 2022, the National Student Financial Aid Scheme (“NSFAS”) disbursed R123 billion in loans to 2 918 624 beneficiaries from low-income households. This substantial financial support underscores the critical role of NSFAS in facilitating access to higher education for economically disadvantaged students.
• The new R3,8 billion fund comprises R1,5 billion from the National Skills Fund (“NSF”) and R2,3 billion from private Sector Education and Training Authorities (“Setas”). While this fund is intended to bridge the gap for the ‘missing middle’, less than half of these students (31 884 of an estimated 68 446) are expected to qualify for the new funding, raising concerns about the adequacy and fairness of the allocation.
• Despite the significant investment, administrative challenges have plagued NSFAS. Issues such as late payments and management inefficiencies have led to student unrest and dissatisfaction. The recent dissolution of the NSFAS board and its subsequent placement under administration reflect ongoing difficulties in the effective management of student funding. Reports from the South African Union of Students (“SAUS”) highlight delays in allowances and other financial strains that exacerbate the challenges faced by students.

The current landscape of financial literacy and student funding reveals a complex interplay of challenges. On one hand, the decline in financial literacy exacerbates difficulties in managing educational finances. On the other hand, administrative issues with student funding schemes hinder the effective support of students in need.

Consequences of Financial Mismanagement

Inadequate financial literacy has far-reaching consequences that intersect with several constitutional rights. Mismanagement of student loans and funding can undermine an adequate standard of living, which includes access to sufficient food, water and social security (section 27). High levels of debt and poor financial decisions can diminish individuals’ ability to meet these basic needs, exacerbating their financial insecurity and affecting their overall quality of life.

The erosion of financial literacy also perpetuates a cycle of economic instability and limited economic participation. This cycle impacts one’s right to choose a trade, occupation or profession (section 22) by restricting opportunities and economic mobility. By failing to manage financial responsibilities effectively, individuals may struggle to achieve their full potential in the workforce, thereby impeding their economic rights and opportunities.

Addressing the decline in financial literacy through robust educational initiatives is crucial for enabling individuals to uphold their constitutional rights. Comprehensive financial education empowers people to manage their finances wisely, thereby supporting their right to economic security, health and an adequate standard of living.

Early Financial Education: A Key to Long-Term Prosperity

Early financial education is vital for safeguarding and enhancing constitutional rights. By integrating financial literacy into the educational curriculum, individuals acquire essential skills to manage their finances, set financial goals and build generational wealth, thereby supporting their right to economic participation (section 22).

Key Points on Early Financial Education:

• Generational Wealth: Educating individuals early about financial concepts fosters the creation of generational wealth, which aligns with the right to access sufficient resources and contributes to long-term economic stability and security.
• Savings and Investments: Teaching savings, investments and retirement planning is fundamental for ensuring long-term financial security and aligns with the right to economic freedom. Early understanding of these concepts enables individuals to make informed decisions that support their future well-being and independence.
• Budgeting and Debt Management: Providing education on budgeting and debt management from a young age helps prevent financial missteps, aligning with the right to an adequate standard of living. It equips individuals with the tools to manage financial responsibilities effectively, preparing them for future economic challenges and supporting their overall financial stability.

Thus, incorporating financial literacy into early education systems not only equips individuals with critical life skills, but also reinforces their ability to uphold and exercise their constitutional rights. By addressing financial mismanagement through early education, we foster a more equitable and prosperous society.

Conclusion

Financial literacy transcends personal skill, it is fundamentally linked to the exercise of constitutional rights and plays a critical role in fostering economic and personal development. Many young South Africans face significant barriers to fully realising their rights due to gaps in financial education. By embedding comprehensive financial literacy programmes into our educational systems and making them accessible to all, we can enable the youth to better navigate their educational, career and financial decisions. This empowerment is essential for ensuring that their constitutional rights are not just theoretical, but practically attainable.

As we move forward, let us pledge to advance financial literacy as a key component of upholding our constitutional rights and securing a more equitable future for all South Africans. The investments we make in financial education today will yield substantial benefits, improving societal well-being and economic opportunities for generations to come.