Programme Director: Lebogang Mothibe
Director: JSE Marketing and Corporate Affairs: Zeona Jacobs
University of Pretoria's Gordon Institute of Business Science (GIBS): Prof Kleyn
Dominican Convent School: Giba Mahlangu
Ladies and Gentlemen
It is with great pleasure that the JSE has extended an invitation to us as the Basic Education Ministry to address the 42nd Annual JSE Investment Challenge award ceremony. The Investment Challenge is the JSE’s flagship corporate social investment initiative. Sadly, it is one of the few programmes in South Africa that drives and promotes financial literacy education. However, we are grateful that the challenge is more than just about investment, but also contributes to the development of entrepreneurship. This is key in building the future leaders of South Africa.
Programme Director; South Africans don’t have a good relationship with money. Recent statistics reveal shocking levels of indebtedness. Only 21c in every rand is available to the average South African household to pay for living expenses. The rest is used to pay debt, despite measures in the last two decades to curb levels of household indebtedness.
What’s more, of the 20 million credit-active consumers in this country, 47% are in arrears on their accounts by three months or more, or had judgments against them, or had negative ratings on their credit record, according to the National Credit Regulator. According to the UNISA Consumer Financial Vulnerability Index, 50.1% of South African consumers are vulnerable.
The Banking Association of South Africa has highlighted three vital measures taken collectively by Government and financial institutions in the last decade to try and better the financial position of the average South African consumer. These measures are:
1. Firstly, the National Credit Act (2005) was passed, which was intended to protect the consumer and make credit and banking services more accessible.
2. Secondly, the consistent lowering of interest rates over the last seven years (with two small exceptions in 2008 and 2014 when it rose by 0.25%), and
3. Thirdly, a credit amnesty was declared, which in effect wiped the slate clean for 3.1 million South African consumers with poor credit records.
It is important to note that the National Credit Act did three major things to relieve pressure on consumers, according to Neil Roets, CEO of Debt Rescue. These are:
1. Firstly, it introduced the mechanism to monitor and prevent reckless lending,
2. Secondly, it provided guidelines about interest rates and fees,
3. Thirdly, it introduced the concept of debt counselling to all over-indebted consumers.
However, all these measures didn’t have the desired effect hence the Government introduced, in 2013, the National Credit Amendment Act. The amended National Credit Act prohibits credit providers from collecting certain prescribed debts, such as clothing accounts and cell-phone debt. A prescribed debt is one that is older than three years, and if there has been no payment, no debt acknowledgement and no summons, it is written off. This does not apply to taxes, home loans and TV license debts, though.
The first act also put the onus on the lender to explain the terms of the loan to the borrower and to do an affordability test. Despite all these measures it is difficult to narrow down the reasons for the escalation of household indebtedness to a single cause, as South Africa’s level of household debt is standing at a staggering 79% of disposable income.
As I alluded earlier, it is sadly become a universally accepted truth that that South Africans don’t save. For example, in rand terms, South African households have actually saved negative amounts in recent years, because they’ve been borrowing more than they save and earn.
As a country, South Africa has a net-savings-to-GDP ratio of around 16.5%, and this is way, way too low. In China, that figure is over 50%, it’s over 30% in India, almost 30% in Russia, and over 18% in Brazil. What’s more, while savings levels in BRICS countries have generally trended upwards over the years, savings levels in South Africa have basically remained flat.
It is within this context that the JSE Investment Challenge is so vital. Largely, because it teaches high school learners and university students the fundamentals of investing on the stock exchange via a simulated game, which simultaneously acts as a teaching resource for financial education. This year, 405 schools from across the country participated. Participants compete in teams of up to four members. Each team is allocated an imaginary sum of R1 million that they can use to trade JSE-listed shares and learn about the larger role that such investment plays in the country’s economy. The challenge encourages participants to research and strategise issues surrounding the trading of JSE-listed shares.
This Challenge alone is not enough. Both the Government and private sector must become the driving force behind promoting financial education. Financial education should also be seen as a business imperative for the investment industry in order for their businesses to remain sustainable over the long term. In this sense, financial institutions should consider the broader impact and benefit of financial education to the economy, namely:
· for the investment industry to continue to thrive in the future,
· A growing economy and financially educated consumers are necessary.
The impact of financial education can be difficult to measure because the ultimate goal is to change behaviour and that takes time. This means that financial education is a long-term investment. Financial education does not have a start or an end date. It is an ongoing process and it continues even in developed markets. Young people who understand money, who know how to use money and who have knowledge about money are going to prosper.
It is our collective responsibility as South Africans to prepare youth to make sound financial choices. The decisions they make today will impact their futures tomorrow.
We are convinced that this JSE Investment Challenge goes a long way in ensuring heightened levels of the importance of wise investment decisions.
Financial literacy is also crucial for Africa as a whole to foster inclusive growth. South Africa struggles with a poor savings culture and consumers often have trouble distinguishing between a need and a want. South Africa is generally a society characterised by instant gratification and materialism. Effective consumer financial education leads to empowering consumers to improve their financial decision-making, promote proactive financial behaviour and protect against destructive behaviours.
Financial literacy can help vulnerable groups like women and the elderly to overcome some of the challenges they face. High debt levels also leave many South Africans vulnerable to predatory lending. Consumers also have access to an increasing range of financial products, but often do not have the ability to determine which products are suited to their personal circumstances.
South Africans need to be taught the importance of saving for a goal and postponing purchases until they can afford it instead of using credit. Education is needed on the true cost of credit. Consumers who do invest also need to be educated to ensure they understand what they are investing in.
The JSE Investment Challenge, which starts in March and ends in September, allows young people to put their heads together and trade in a risk-free environment, testing their investment skills against their peers. The Challenge has three different categories with differing risks. Teams select their appropriate wealth management strategy, choosing to compete in the Speculator portfolio (high risk), the Equity Growth portfolio (moderate risk) or the Income portfolio (low risk). This year’s competition has five top prizes, valued at R60 000 per portfolio in the Schools Challenge and another R60 000 in the University Challenge.
In conclusion, we congratulate the winners in the top five positions for schools and the top three for universities who are here with us today. We also congratulate all participants. In life, what’s more important than just winning is taking part and learning in the process. We hope the JSE Investment Challenge taught all of you some basic good habits about money. Although, I am no financial guru, I live by these three golden rules:
1. I don’t spend money that I do not have.
2. I spend wisely and responsibly and more importantly,
3. I always save some money.
I hope participants and winners by now know the difference between needs and wants. You should be well acquainted with the dangers of unregulated money lenders, known as loan sharks.
Lastly, I urge each one of you to teach this important tip to all your family members and friends: Each household/person must draw up a budget every month and stick to it.
I thank you!