South African consumers are functioning in increasingly complex financial markets, which are further exacerbated by volumes of information and an increasing choice of products. Consumer issues such as not being able to properly evaluate the appropriateness of financial products to suit personal circumstances, predatory lending, high levels of consumer debt, low saving rates and limited knowledge of recourse mechanisms all adds to the need to better equip consumers when dealing with their financial affairs. Empowering consumers to improve their financial decision-making and promote proactive financial behaviour is achieved by exposing them to effective consumer financial education.
The process by which financial consumers/ investors improve their understanding of financial products, concepts and risks and, through information, instruction and/ or objective advice, develop the skills and confidence to become more aware of financial risks and opportunities, to make informed choices, to know where to go for help, and to take other effective actions to improve their financial well-being.
(This definition of consumer financial education as defined by The Organisation for Economic Co-operation and Development (OECD) and as adopted by National Treasury, the Financial Services Conduct Authority and ASISA.)
It is people’s ability to understand finance, thereby allowing them to make informed and effective decisions through their understanding of finances. It encompasses participation by people in economic life that maximises life opportunities and enables them to lead fulfilling lives.
It is people’s knowledge and skills to understand their own financial circumstances, along with the motivation to take action. Financially capable consumers plan ahead, find and use information, know when to seek advice and can understand and act on this advice, leading to greater participation in the financial services market”. Financial capability is a broader concept than financial literacy.
The Amended Financial Sector Code (FSC) came into effect on 1 December 2017. It provides the financial sector with a clear roadmap on how to build on existing achievements in black economic empowerment to the benefit of all stakeholders. The FSC is also the framework against which the empowerment progress of the financial sector is measured.
The Socio-Economic Development and Consumer Education Scorecard of the Amended FSC provides 2 points for 0.40% of net profit after tax (NPAT) for qualifying consumer education contributions by a measured entity and an additional 1 Bonus Point for additional contributions of 0.10% of NPAT. Guidance Note GN500 provides details on consumer education contributions.
National Treasury released its policy statement “A safer financial sector to serve South Africa better” in February 2011. The document highlights consumer financial education as one of the components of a comprehensive solution for protecting consumers of financial services. In 2012 National Treasury constituted a National Consumer Financial Education Committee which is a multi-stakeholder committee, comprised of representatives from labour, community, the private sector, and government. The committee is accountable to the Minister (or his delegate). The mandate of the committee includes finalising a consumer financial education policy, developing a national consumer financial education strategy, overseeing the implementation of the strategy and reviewing it on an annual basis to ensure its relevance. ASISA represents the savings and investment industry on this committee.
The FSCA’s mandate is to enhance the efficiency and integrity of financial markets; promote fair customer treatment by financial institutions; provide financial education and promote financial literacy; and assist in maintaining financial stability. The Consumer Education Department of the FSCA is the secretariat of the National Consumer Financial Education Committee.