Financial education: A focus on young working women’s financial needs

“Young people who are entering the job market can avert the debt trap by resisting the temptation of easy credit, embracing a savings culture early in their careers, and by broadening their portfolio by investing in a wide range of investment tools that are available in the market,” says Boipelo Makgolane, Senior Corporate Finance Analyst at Hollard Life Solutions.

The South African Reserve Bank (SARB) recorded a surge in household savings to 18% of GDP in the first quarter of 2021 on the back of consumer worries about the COVID-19 pandemic. But South Africa remains notorious for its low savings culture and high household debt, close to R2.5 trillion, which averages out to R415,000 per household.

“A lot of retailers offer store accounts; we have seen this trend in our families, which has trapped many households in a never-ending debt cycle. Clothing accounts and accounts at convenience stores offer consumers the ability to get credit with no hassle; however, it encourages impulsive purchases because of its seamless accessibility,” Makgolane notes, adding that like store accounts, credit card accounts can also quickly spiral out of control, suffocating hard-pressed consumers in high interest payments.

“Like the store accounts, the risk with using credit cards is that debt can build up really quickly because of seamless accessibility to easy credit. However, when used smartly consumers can derive some benefits from these facilities by utilising them prudently and within their means. For example, some credit card facilities offer rewards or points on their usage. Consumers can take advantage of this by capping a spending limit they can afford to pay off monthly by only spending what they can afford in order to utilise those rewards. Similarly, consumers are also encouraged to consider using other credit alternatives such as lay-byes which are viable, interest-free options to save up to purchase something over time,” she adds.

Makgolane advises consumers to budget, to inculcate a culture of savings by putting away a portion of their income for a rainy day. To do so, she says consumers need to do an honest scrutiny of their monthly expenses to identify areas of profligacy and make the necessary adjustments.

“The first thing that you need to do when you want to start budgeting is you need to open your bank statements and make a list of what it is that you are spending your money on; you can look at the last two, three months just to get an idea of your regular spending habits. This means conducting an audit of average monthly spending on groceries, petrol or transport money, entertainment and so on, and break down this expenditure by making sub-categories for each item. That’s the only way you can see where you need to start saving money. Budgeting and saving should be internalised and turned into a habit. You need to treat your savings more like a monthly expense, no matter how much it is,” says Makgolane.

She concedes that the current economic climate has put increased pressure on consumers’ disposable income but points out that this should not dissuade households from building a nest egg for a rainy day.

“It is a misconception that you need to be making more to save – savings can be as little as R50, as little as R100 or R500 a month, it does go a long way over a long period of time, and it can really save your day. All banking institutions have different saving products geared for every type of person and every type of situation. The onus is on consumers to find out from their banks about these products and ascertain what is most suitable for their financial circumstances and savings goals,” she adds.

Makgolane says there is a plethora of investment options available to consumers. These range from equities, where a minimum investment of R100 is required, to vehicles such as tax-free savings accounts where money is invested in a medley of products such as unit trusts, savings accounts, bonds, and fixed deposits. Consumers who invest a maximum of R36 000 per annum in these accounts can access and withdraw their proceeds tax free.
Makgolane adds that conscientious consumers that want to be more tax savvy can also deduct allowable donations that they have made up to a value of 10% of their taxable income. These donations must have been made to charity organisation registered by the South African Revenue Services (SARS) who will provide them with a S18A certificate.

She emphasises that the earlier young entrants into the job market invest into their retirement and savings, the better their financial standing will be in the long term. The aim should be to create better futures, and it all starts now.

She says that in as much as it is important to adopt prudent ways of spending money, young people who plan to start a family should be mindful of passing on these good habits to their offspring.

“It’s important to impart financial education in our kids early on and teach them about how to judiciously manage income and expenses while encouraging them to save. You can do this by giving them a monthly allowance, instead of buying things for them, and then monitoring how they spend it. This will compel them to apply their mind and learn how to make the right decisions. Of course, they might not get it right the first time, but as caregivers we are there to guide them and steer them onto the right path,” she says.

Makgolane says the importance of young people saving as early as possible in their career cannot be over emphasised. “If anything is taken out of this, it should be the fact that a little goes a very long way and it’s the same with savings and with investment,” she concludes.