SA’s poor savings culture has been the subject of much analysis. As a nation, our tendency towards status-driven spending and a strong sense of financial responsibility toward extended family members, coupled with relatively low levels of disposable income, can only partially explain why we don’t save, let alone invest. Many South Africans just don’t know how.

The JSE recently conducted independent research, which shows that there are over 1.2 million potential retail investors in the country, but only just over 200 000 of them are currently investing on the exchange. This means that there are almost a million people in SA with enough disposable income to save and invest, who aren’t doing so. There is definite opportunity for more South Africans to invest on the exchange.

Government has recognised that a crucial way to change this is through financial education. The ruling party considers it a national imperative. Financial education empowers consumers to improve their understanding of financial products, concepts and risks. It helps them make informed decisions, to know where to seek the right information and to take effective actions to improve their financial well-being.

In this context, we are very excited by the tax-exempt savings accounts (TESA) announced earlier this year by the minister of finance, which will be introduced in March 2015. To promote a savings culture in SA, National Treasury will provide tax exemptions to certain types of savings and investment accounts (the maximum investment per person is R30 000 per annum). We believe the introduction of TESAs will be an important catalyst to grow a retail savings and investment culture, and in turn grow retail participation on the exchange.

Financial education should also help people understand which financial products best suit their personal circumstances. For many South Africans, investing is like ordering lunch at a French restaurant. Our financial services industry offers a fantastic menu with a diverse variety to choose from, but our patrons can’t read it. They simply do not understand the language we use to present it to them.

Financial literacy should therefore also be seen as a business imperative for the financial services industry – investment in particular. We will not succeed in convincing potential retail investors to use our products if we don’t find new and simpler ways to explain what products we have to trade and how to trade them. Part of this process involves redesigning and repackaging these products so that they are simple, easy and tailored to customer lifestyles.

Getting this right will challenge much of the way we all do things. If we want retail investors to choose the products we offer, we need to make it easy and compelling for them to choose us.

The JSE has several initiatives aimed at encouraging people to invest. These include investment seminars and webinars, basic education on investment and the JSE Investment Challenge, aimed at high school and university students as well as the general public. These initiatives are a good first step, but convincing people to save is only the beginning.

Financial education is an ongoing process and it should continue even in developed markets and at all levels of the investment value chain. Financial literacy is a long-term objective for the JSE and we have partnered with the Association for Savings and Investment South Africa, the Banking Association South Africa, National Treasury, the Financial Services Board, Reserve Bank and provincial government in Gauteng to position SA as a financial centre in Africa, for our vision for the country from now until 2030.

We have recognised the importance of a financially inclusive country that enables all South Africans to participate and contribute to our economy. Fostering financial education and innovation enhances individual wealth accumulation and more financial freedom and empowerment. This is only one component of the vision that we want to accomplish for the benefit for all.

That said, we cannot reduce the high level of inequality in SA overnight. But we can teach parents to save for their children’s education. We can help them accumulate assets to pass down to the next generation, and understand the difference between receiving company shares and a cash bonus. This is truly the only way to reduce not only inequality in financial ownership, but also inequality in financial understanding.

Nicky Newton-King
Chief Executive Officer, JSE

October 2014
Image: Matina Steyn