11 years of consumer financial education in South Africa Measuring Financial Literacy and Capability: Diagnostic Tools to Support Policy Development Mr Lyndwill Clarke Head: Consumer Education Ritz-Carlton Hotel Moscow 13 June 2013

11 years of consumer financial education in South Africa Measurement of Financial Literacy in RSA  Before 2010 – Evaluation per project and programme  2010 OECD Pilot Study  2011 Baseline Study  2012 SASAS 2

11 years of consumer financial education in South Africa Why Measure Financial Literacy? Set a baseline – needs/gap analysis Influence policies, strategy and programme design Impact assessment (TO SEE IF CFE WORKS?) 3 Financial Planning Knowledge & under- standing Choosing financial products Financial Control Financial Literacy

11 years of consumer financial education in South Africa 4 OECD Questionnaire Content

11 years of consumer financial education in South Africa 5 Financial control 8(23) Financial control 8(23) Financial planning 5(18) Financial planning 5(18) Products choice 12(63) Products choice 12(63) Financial knowledge 8 (35) Financial knowledge 8 (35) From Pilot to Baseline to Annual Study BEHAVIOUR 9 BEHAVIOUR 9 ATTITUDE 4 ATTITUDE 4 KNOWLEDGE 8 KNOWLEDGE 8 FINANCIAL INCLUSION Financial control 8 Financial control 8 Financial planning 5 Financial planning 5 Products choice 12 Products choice 12 Financial knowledge 8 Financial knowledge 8 ANNUAL SURVEY OECD PILOT SA BASELINE SA BASELINE

11 years of consumer financial education in South Africa Study Methodology Survey conducted by Human Sciences Research Council (HSRC) Nationally representative of the population 16 years and older living in private households in the 9 provinces Primary sampling units: 500 census enumerator areas (EAs), stratified by province, geography type and majority population group Secondary sampling units: 7 household visiting points randomly selected per EA One respondent 16+ years randomly selected per household Of 3,500 addresses issued 2,518 (2,972 – 2011) interviews achieved Responses to the survey voluntary and confidential, collected by face-to-face interview Data collection: November-December

11 years of consumer financial education in South Africa Financial control 7 Eight indicators: OECD PILOT 2010 BASELINE 2011 SASAS 2012 Indicator 1Personal involvement in daily household money management Indicator 2Presence of a household budget Considered Approach to Personal Finances Indicators 3-5 Careful spending Paying bills timeously Closely monitoring financial matters Making Ends Meet Indicators 6-7 Making ends meet Main coping response Indicator 8Preference for spending or saving

11 years of consumer financial education in South Africa Making Ends Meet 45% personally experienced income shortfalls last year –Little difference in response between 2010 and Two common coping responses: borrowing from family/friends (41%); cutting back on spending or doing without (43%) – nominal reliance of financial products. –Increase in the share of South Africans cutting back on spending as a coping strategy between 2012 (43%), 2011 (35%) and 2010 (30%). –Decline in the share of South Africans borrowing from family/friends as a response to income shortfall between 2012 (41%) and 2011 (55%). Most important coping mechanism for South Africans is cutting back on expenditure or doing without (31%) –This was primarily a coping strategy is more common among middle income South Africans; the poor are more reliant on social networks 8

11 years of consumer financial education in South Africa Financial Control Domain Score (2011, 2012)

11 years of consumer financial education in South Africa 10 Financial Planning Five indicators: OECD PILOT 2010 BASELINE 2011 SASAS 2012 Indicator 9Tends to set and strive to achieve long- term financial goals Indicator 10Has emergency funds or rainy day funds Indicators 11Preference for spending money vs long-term saving Indicators 12Living for today vs long-term provision Indicator 13Saved money in the last 12 months

11 years of consumer financial education in South Africa Savings Behaviour Paying money into a savings account Saving cash at home or in your wallet Building up a balance of money in your bank account Saving in a stokvel or any other informal savings club 9117 Giving money to family to save on your behalf 9106 Buying financial investment products, other than pension funds 354 Or saving in some other way (remittances, buying livestock or property) 253 None of the Above Significant majority saved in at least one type of savings instrument Signs of declining ability to save over last 3 years

11 years of consumer financial education in South Africa Behaviour and Attitudes to long-term planning 52% of the adult population always/often sets and pursues long-term financial goals; 22% sometimes; 22% doing so seldom or never. 39% find it more satisfying to spend money than to save it for the long term (45% preferred saving and 13% remained neutral) 29% reported that they tend to live for today and let tomorrow take care of itself (53% preferred to plan for tomorrow; 18% remained neutral) 42% believed that money is there to be spent (37% preferred to save and 21% remained neutral). Attitudes have not changed appreciably since but Signs of declining ability to save over last 3 years 12

11 years of consumer financial education in South Africa Financial Planning Domain Score (2011, 2012)

11 years of consumer financial education in South Africa 14 Appropriate product choice Twelve indicators: OECD PILOT 2010 BASELINE 2011 SASAS 2012 Product awareness Indicators Banking products Credit and loan products Investment and Savings Products Insurance Products Product holding Indicators Banking products Credit and loan products Investment and Savings Products Insurance Products Financial product decision making Indicators Have clear idea of product need Informed Product choice No Experience of regret about recent financial product choice Indicators Does no Regret any Key Financial decisions made in the last year Did not Pay for Unsuitable product in the last five years

11 years of consumer financial education in South Africa Banking Products

11 years of consumer financial education in South Africa Main Non-Banking Products

11 years of consumer financial education in South Africa Product Choice Domain Score (2011, 2012)

11 years of consumer financial education in South Africa 18 Financial knowledge and understanding Eight indicators: OECD PILOT 2010 BASELINE 2011 SASAS 2012 Indicator 26Basic mathematical division Indicator 27Effects of inflation Indicators 28Interest paid on loans Indicators 29Interest on deposits Indicator 30Compound Interest Indicator 31Risk of high return investments Indicator 32Effects of inflation of cost of living Indicator 33Risk diversification

11 years of consumer financial education in South Africa Trend and Subgroup Differences on the Financial Quiz BASIC ARITHMETIC: 2010 only four-fifths answered the question correctly compared with almost nine out of ten (86%) in UNDERSTANDING OF INFLATION: more people answered this question incorrectly in 2012 when compared with UNDERSTANDING OF INTEREST AND COMPOUND INTEREST: the share answering this question correctly did not change significantly over the period. –The share giving an incorrect answer on the interest rate question and compound interest question was greater in 2012 than in 2011 and

11 years of consumer financial education in South Africa Financial Knowledge Domain Score ( )

11 years of consumer financial education in South Africa 21 Overall Scores, and Composite measure Financial Planning Appropriate Product Choice Financial Knowledge & Understanding Overall Financial Literacy Score Financial Control

11 years of consumer financial education in South Africa Way forward 22 Repeat core financial literacy core module year-on-year Next Baseline study – 2016 Challenge: Integrating programme and project survey and M & E statistics into Baseline and Annual survey Repeat core financial literacy core module year-on-year Next Baseline study – 2016 Challenge: Integrating programme and project survey and M & E statistics into Baseline and Annual survey

11 years of consumer financial education in South Africa THANK YOU FOR YOUR ATTENTION 23 Mr Lyndwill Clarke HOD: Consumer Education Financial Services Board – South Africa Tel: (+27) Mobile: (+27)