/ 18 September 2009

Accounting for low financial literacy levels

A study conducted by Unisa researchers into the factors that influence the financial literacy levels of chartered accountancy students has indicated that age, language, race, gender and income levels all have an effect.

The study was undertaken by professors Jan Venter and Bernadene de Clerq of Unisa’s department of taxation, and Oscar Kilpert of Unisa’s Institute for Curriculum and Learning Development.

They conducted a survey among 902 Unisa bachelor of accounting science (BCompt) students.

The South African Institute of Chartered Accountants (SAICA) has repeatedly expressed concern about South Africa’s shortfall of about 22 000 chartered accountants, as well as university students who want to become accountants but don’t have the necessary mathematical skills.

The study revealed gender as one factor that influences the level of financial literacy: males are more financially literate than females.

Age also plays a role in the financial literacy of a student, with the 30 to 39 age group being the most financially literate.

The younger students are the least financially literate because most of them have just completed school.

Regarding the ethnic background of the students, the study revealed that home language and race influence the level of financial literacy: because of the history of South Africa, previously disadvantaged black South Africans are the least financially literate.

According to the researchers, these findings should enable chartered accountancy firms to identify trainee accountants who might require special training.

One of SAICA’s concerns is that, owing to the shortage of trainee accountants in South Africa, those who have not completed their degrees are increasingly interacting with clients and may unwittingly give advice that is outside the provisions of the Financial Advisory and Intermediary Act 37 of 2002 (FAIS).

The Act emphasises the need to ensure that financial service providers have adequate levels of financial literacy.

It states that if any person (including a trainee accountant) gives advice that is not appropriate, or is in a language that the client does not understand, the financial service provider (ie, the chartered accountant principal) could be liable to legal action by clients.

It is therefore imperative for principals at chartered accounting firms to be aware of the factors that influence their trainee accountants’ financial literacy levels.

According to the Unisa researchers, understanding these factors could help chartered accounting principals take steps to limit possible liabilities.

Ultimately, the lack of financial literacy hits South Africans where it hurts most — in their pockets.

Unisa’s Bureau of Market Research found in its first quarterly Consumer Financial Vulnerability Index released last month that two of the 10 main reasons for households experiencing financial difficulty are “not sufficient savings to draw on” and “spending more than is earned”.

Nearly 45% of respondents said that what they spend was restricted by what they could borrow.