/ 26 January 2024

Navigate your financial independence

P6 Graca Do Carmo 1
Learn how to budget as soon as possible says financial coach Grace Do Carmo, and this will help you to avoid debt and financial stress.

Financial literacy can make a world of difference for school leavers

Financial stability is a crucial aspect of adulthood, and the journey toward financial literacy is paramount for thousands of South African school leavers finally entering the realm of independence. Financial coach Grace Do Carmo says young people must take active steps to acquire the tools needed for financial success, adding that it is never too early — or too late — to plan for the future. 

“This knowledge is crucial because it helps people make smart money choices and ultimately leads to a more stable and secure financial future,” she says, adding that the South African education system does not do enough to prepare young people to manage finances after matriculation. “One major problem among school leavers is the lack of budgeting skills, which leads to challenges in managing their finances effectively,” she explains. 

Unique challenges for the youth 

In South Africa, societal and systemic barriers still stand between the youth and their financial wellbeing. Do Carmo believes financial literacy must be viewed within the country’s unique context of high youth unemployment, limited access to formal financial systems and disparities in educational opportunities, as well as a lack of positive role models. 

Addressing these concerns requires a comprehensive strategy involving improved education, increased banking access and initiatives that promote economic opportunities for young people. 

She says it is also crucial to acknowledge the unique challenges young women face: “When we tailor financial education to address gender-specific considerations — like negotiating salaries and addressing the gender pay gap — we ensure that every young person is equipped to navigate their unique financial challenges.” 

Core financial literacy skills are key 

For school leavers, Do Carmo emphasises adaptability in the face of a changing world, and core financial literacy skills as essential for success: “Budgeting is at the top of my list: know what income you have and what your expenses are, know how your income is taxed and live within your means at all times. Learn the value of money, and understand the basics of banking, saving and investment.” 

Young people must learn to prioritise needs over wants. One way to do this is to set a monthly budget and stick to it: “Work on changing your mindset from ‘instant gratification’ – which is a learned behaviour — to one of ‘delayed gratification’. And get into the habit of asking for student discounts! If you do this every time, whether you’re buying something or getting a haircut, you can save a lot of money!” 

She says financial discipline should be an ingrained habit. “Recognise early on that buying branded items is a luxury that you treat yourself only when you can afford to do so without getting into debt. Stop caring about what others think about you or how you look or dress, because trends will come and go.” 

Entrepreneurship and the ‘side hustle’

With South Africa’s high youth unemployment, Do Carmo urges young people, especially women, to build financial resilience by diversifying skills, seeking financial education, cultivating good savings habits and exploring entrepreneurship: “The youth can navigate high unemployment rates by learning new skills, networking and making use of online learning.” 

Even while studying, a part-time job or side hustle can go a long way to ensure ends meet. “Starting your own business is one way to create an income stream and build wealth, and most small businesses can be started without prior funding,” she explains, adding that this is also a way to instil a mindset of financial resilience.

For those considering entrepreneurship, Do Carmo recommends managing personal finances effectively and keeping personal finances separate from business funds — right from the start. “This will make managing your cash flow in your business much easier, and you will be more inclined to invest the money earned back into the business, instead of spending it on yourself, which often results in businesses failing.”

Foster an abundance mindset 

Beyond money management, Do Carmo stresses developing an abundance mindset and continuous learning. Here, she says, parents have a role to play. Preparing the youth for financial independence requires having open conversations at home on the importance of setting financial goals, distinguishing needs from wants, and introducing concepts such as earning and saving. This can also be done through resources like books, online games and educational apps for financial literacy. 

Do Carmo suggests normalising money discussions, teaching the value of money, and shifting conversations from a scarcity to an abundance mindset: “When your child asks for something, instead of saying you can’t afford it, ask them for suggestions as to how you could afford it.” 

Future-focused advice

If there is one thing Do Carmo wishes she had known when she left school, it would be that it is never too early to start saving for retirement: “Even if it is just a small amount. At that age, we are convinced there will be time for that later. I wish I had started contributing to my retirement right after school: if I had done that, I would have been able to retire at least 10 years ago!”  

This, she says, does not mean that money should not be spent or enjoyed. “As with everything else in life, balance is key; find your balance when it comes to this too.” The road ahead may be challenging, but financial freedom is a destination worth striving towards.

Tips for responsible management of student loans

Embarking on the journey of tertiary education is a milestone for many young individuals, but the financial burden that often accompanies it, particularly if one has a student loan, can be daunting. To navigate the challenges of funding tertiary education, financial coach Grace Do Carmo provides the following advice to responsibly manage student loans and budgets: 

Understand the long-term commitment 

A student loan is a long-term commitment that extends far beyond the duration of the academic programme they are financing. “Even if your degree spans only three years, the repayment period extends for 10 years or more,” Do Cormo cautions. Understanding the longevity of this is crucial for informed decision-making. 

Stick to the repayment plan

“Do not pay less than the standard repayment plan,” she advises. If difficulties arise, she encourages individuals to reach out to their bank promptly to discuss available options and avoid accumulating additional financial stress. Sticking to the predetermined repayment plan is vital for maintaining financial discipline. 

Make additional contributions where you can 

Where possible, Do Carmo advocates for initiating repayments from the first month. Starting early can help in establishing a routine and prevent falling behind. Furthermore, she suggests making extra payments whenever possible. The contribution of additional funds reduces the overall debt, expedites the repayment process and demonstrates financial responsibility.

Part-time employment for financial stability

For those navigating student loans, Do Carmo recommends finding part-time employment to supplement income. A part-time job not only helps meet monthly repayments but also allows for extra contributions towards the loan. 

Treat loan balances as a ‘living document’

Managing student loans involves more than just making monthly payments. According to Do Carmo, it’s essential to treat loan balances as a “living document”. Regularly reviewing figures and understanding the various aspects of how loans work contribute to a comprehensive understanding of one’s financial standing.

Seek benefits and bonuses

Do Carmo advises students to inquire about potential benefits or bonuses tied to academic achievements. Some loan programs offer incentives for high academic performance. Taking advantage of such opportunities can ease the financial burden and provide additional motivation for success.

Forget ‘flashy living’ and stick to your budget 

In a world where social media often showcases glamorous lifestyles, Do Carmo urges students to remain focused on what they can afford. Staying true to a realistic monthly budget is crucial for financial stability, and helps to avoid unnecessary debt and financial stress.