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.
What is 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 Board and ASISA.)
What is financial literacy?
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.
What is financial capability?
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.
ASISA and its members will actively participate in helping consumers become financially capable. Our approach is to inform, educate and empower consumers to manage their financial affairs appropriately. Such a change in behaviour will lead to consumers managing their finances soundly, so reducing their vulnerability and helping them to build assets. ASISA and its members, through the Consumer Financial Education Standing Committee, will work with the ASISA Foundation and other suitable stakeholders. ASISA will also align its work with the Financial Sector Code, National Treasury and the Financial Services Board.
The Financial Sector Code (FSC) was gazetted as a sector code in terms of the Broad-Based Black Economic Empowerment Act, of 2003 on 26 November 2012. The origins of the Code are the Financial Sector Charter, a voluntary transformation charter implemented through the Financial Sector Charter Council. It came into effect in January 2004 as a result of agreements reached at the NEDLAC Financial Sector Summit in August 2002.
The FSC provides for all financial services firms to apply 0.30% in 2013 and 0.40% in 2014 of their net profit after tax from retail business to consumer financial education. The FSC has developed standards and guidelines for conducting initiatives and ASISA will work in accordance with these in the execution of its work.
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 Consumer Financial Education Committee which is a multi-stakeholder committee, comprised of representatives from labour, community, the private sector, and government. The committee will be 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 organ of government for the savings, long-term insurance and investment industry is the Financial Services Board (FSB) which is mandated through legislation, the Financial Services Board Act, to “Promote programmes and initiatives by financial institutions and bodies representing the financial services industry to inform and educate users and potential users of financial products and services.” The FSB reports to the Minister of Finance in this regard.
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