Changing behaviour through education
The lives of the poor or the marginalised may be greatly improved by using transaction accounts to make purchases for goods and services, savings accounts to preserve wealth, credit services to increase productive capacity and insurance services to deal with unforeseen risks. Meaningful participation in the formal financial sector, however, is beyond the reach of many South Africans.
The problem of exclusion is compounded by the ever-increasing range of financial products on offer. The growing complexity of the financial sector also highlights the need for financial understanding and consumer financial awareness as never before.
The Organisation for Economic Cooperation and Development (OECD) defines financial inclusion as a "process of promoting affordable, timely and adequate access to a wide range of regulated financial products and services and broadening their use by all segments of society through the implementation of tailored existing and innovative approaches, including financial awareness and education, with a view to promote financial well-being as well as economic and social inclusion."
Individuals who are outside of the provision of affordable, timely and adequate financial products are considered to be financially excluded.
The range of products and services that can be considered within this definition is wide and includes basic banking provision, savings and investment products, remittance and payment facilities, credit and insurance.
It can thus be assumed that there are specific barriers to financial inclusion that stem from either factors caused by the financial industry or from the personal situation of consumers.
Prohibitive market factors have been known to exclude some sections of the population, with actions such as:
• preventing access for those with no credit record;
• charging high fees for basic transactions such as withdrawing money;
• designing terms and conditions that exclude large proportions of the market (including the requirement for high minimum balances); and
• targeted marketing that favours certain groups.
Furthermore, increasing dependence on technology (such as mobile telephones and computers) to access financial services, are now likely to exclude individuals and communities where electricity is not available or networks are limited.
These innovations were initially meant to overcome geographical and physical barriers. All of this opens the door to informal, unregulated, alternative financial service providers: the street corner mashonisa.
These unscrupulous moneylenders provide basic financial products at high cost and with a high level of risk, ultimately trapping people into a spiral of repayments and reducing the likelihood that they will migrate to formal financial services.
Financial vulnerability caused by personal circumstances, such as a lack of money and resources, impaired or no credit history and unemployment, can leave individuals unable or unwilling to access formal financial products. Individuals in this situation often resort to the aforementioned moneylenders.
Individuals with low levels of literacy and numeracy also find it hard to deal with financial service providers, either because they do not speak the same language or because they are unfamiliar with the terminology used by the financial sector.
This leads to low levels of financial literacy, a lack of knowledge and awareness in relation to financial products, a low level of confidence and certain attitudes and behaviours that inhibit the use of, and trust in, formal financial products.
The Financial Services Board (FSB) has recognised the need for a safe, regulated financial environment and is working towards a vision "to see all South Africans manage their personal and family financial affairs soundly and to see that irresponsible financial services providers are not supported, but reported".
Established in terms of the Financial Services Board Act (Act No 97 of 1990), the FSB is responsible for supervising the non-banking financial services industry (insurance, investments and private retirement funds).
In 2000, the Act was amended to mandate the board to promote programmes and initiatives by the financial services industry and to inform and educate users and potential users of financial products and services. As part of this mandate the FSB promotes and maintains a sound financial investment environment; protects investors in the regulated markets; and promotes consumer financial education.
The FSB thus encourages new consumers to the financial markets by providing a regulatory environment in which consumers can feel safe to engage with financial service providers and know that they will be able to purchase financial products that suit their needs and their pockets.
It also encourages the financial sector to build a trust relationship with their clients for the sector to grow and be sustainable.
The FSB does this by administering 13 pieces of legislation and implementing specific market conduct programmes — such as the Solvency Assessment and Management, Treat Customers Fairly, the Fit and Proper Requirements programmes — and by implementing an extensive consumer financial education programme.
Financial education clearly has a role to play in overcoming several of the barriers mentioned earlier. It can improve levels of financial literacy, help individuals to overcome financial vulnerability caused by personal circumstances and potentially breakdown psychological barriers.
Financial education can also teach people about technological innovations aimed at helping them to overcome geographical barriers and integrate into the formal financial market.
The FSB's consumer financial education strategy includes two key areas, namely community education and formal education. These areas were identified for creating awareness about financial literacy and consumer financial education.
The community education programme offers the opportunity to educate consumers who are already economically active.
The formal education sector on the other hand, offers the opportunity to promote and initiate programmes that see learners exiting the schooling system with sufficient information and skills to enable them to take responsibility for their financial future and make considered decisions, as well as to know how to act when things go wrong.
Financial inclusion should not, however, be seen in isolation. A recent study conducted by the FSB to determine the financial literacy levels in South Africa has shown that:
• 44% of South Africans personally experienced income shortfalls last year;
• 36% experienced the lack of food to eat;
• 39% went without necessary medical treatment; and
• 38% recorded at least one instance where there was no energy source to cook.
This clearly shows that most South Africans, although they have a healthy attitude towards their money, do not have the means to be active in the financial sector.
Even comprehensive consumer financial education programmes and projects have failed in producing the desired behavioural change.
This could be a result of habits formed over many years and a range of emotional and psychological factors that often lead to people continuing with old behaviour patterns, even when they have the necessary knowledge and skills to change.
Changing behaviour is made more challenging when resources are scarce and trust is limited, as is often the case when working with marginalised groups.
Yet behaviour change is a key objective of financial education for financial inclusion. The basic premise of such programmes is that once individuals have received financial education, they will start to demand and use appropriate financial products to increase their financial wellbeing. The financially excluded may need even more intensive support and incentives alongside information and knowledge to break their previous behaviour patterns.
Lyndwill Clarke is manager: consumer education at the Financial Services Board