Edition: Sept - Nov 2013
Financial institutions are now obligated to contribute 0,4% of taxed profit to consumer financial education. But contribute to whom? A potential R300m annually will go a long way if properly managed.
It’s one thing to proclaim good intentions. It’s another to implement them. Let attempts to promote consumer financial education step forward.
Yes, yes, of course we must expedite it, say financial institutions readily pointing to initiatives they individually undertake. Not so fast, say trade unions wary of how it can become confused with marketing endeavours. No, no, say influential voices in Pretoria sceptical about it being driven by service providers to promote their products.
All of which has left the impetus for mass financial-literacy programmes floundering in an absence of coordination. Nobody’s taken charge. Nobody’s in control. No matter that everybody sees it as a social imperative, an economic necessity and an educational priority. How else is a savings “culture” to take root?
Potentially, but only potentially, this is about to change. It will depend on how mindsets change from the introduction of two catalysts.
Within days of one another during July, National Treasury’s discussion paper on charges in SA retirement funds was released and the recently-gazetted Financial Sector Code was officially launched. They’re joined at the hip.
Taken together, they’ll have a more powerful impact on the ways that financial institutions conduct business than either could achieve separately. More than this, they promise to set in motion a customer-centricity monitored for application.
Treasury can’t attack charges without facilitating consumers’ comprehension of them. The FSC can’t be a transformational mechanism without the key educational component. Suppliers of capital, notably retirement-fund members, are linked in the same chain to the investors of it, namely institutions committed by the code.
Slowly does it. An adaptation period is needed, and is allowed. By the same token, however, there’s urgency that plans are activated before they settle into lethargy.
A delay is in the reticence of institutions to switch from their own educational programmes, which fall under their individual corporate social investment (CSI) activities, to the intra-industry pooling that the FSC envisages. This is understandable not only in the sense that CSI can be tax-deductible and used to extend an institution’s marketing efforts, but also in that budgets have already been allocated and contracts entered for the purpose.
For its part, the FSC requires that institution must annually spend at least 0,4% of net after-tax profits from their SA operations on consumer financial education. Between the banks, life offices, asset managers and others, the cumulative amount could exceed R300m a year (TT March-May).
That’s a gob-smacking resource from which to create content and innovate modules, using the plethora of distribution channels that electronic technology invites, to excite mass markets niched from primary schools to adults at different levels of income and sophistication. The extent of the challenge is meticulously set out in the 2013 report, ‘Financial Literacy in SA’, prepared by the Human Sciences Research Council for the Financial Services Board.
Unsurprisingly, the literacy level is pathetic. This applies particularly amongst groups in the lower LSM (Living Standards Measure) categories who have little grasp of such basic concepts as compound interest and inflation, let alone an ability to select financial products. The findings of the HSRC study, it concludes, lend support “for a more comprehensive and aggressive programme for financial consumer education”.
In other words, programmes applied in the past haven’t worked as they should have. The results of the study, and other surveys such as those most recently by Old Mutual and Sanlam, make that glaringly obvious.
There’s no need to recite the litany of high household debt and dismal savings awareness, except to note two things. First, if the old ways haven’t worked (individual institutional campaigns), then new ways opened by the FSC (a combined industry effort) must be tried. Second, the consolidated application of R300m in annual resource is not only a social good but sublimates attempts at capturing market share from competitors to growing the savings industry as a whole.
There’s a further incentive. It’s the collection of points in terms of the FSC scorecard. There are strictures on what will count and what won’t. For instance, straightforward advertising won’t count but branded educational material will. Where there’s a fine line to be crossed, the Charter Council will assess the crossing.
On this 15-member council are high-level representatives of government, the Association of Black Securities & Investment Professionals, organised business (including the bank and savings institutions), the “community” and trade unions. Consumer education counts for slightly over 14% of the ‘access to financial services’ category.
There’s a strong argument that education offered by service providers shouldn’t rank for FSC points. Accordingly, various independently-governed foundations have been established to entice participation through them.
The Financial Services Board and the Association of Savings & Investment SA have foundations, for example, while the SA Insurance Association and the JSE undertake projects on a centralised basis. These, with the Banking Association, would be key groupings in the coordinating committee being formed by National Treasury.
Evidence to date is unarguable that fragmented efforts have been less than successful. By contrast, the opportunity now is to achieve scale for optimal impact. Management of these mega-millions must see to it.
Bear in mind that the FSC – in itself a remarkable achievement in disparate parties reaching the consensus of good intentions – comes up for review in 2017. So here’s the choice: ensure that it passes with flying colours, as a model of public-private collaboration, or expect the imposition of levies.