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11 years of consumer financial education in South Africa Measuring Financial Literacy and Capability: Diagnostic Tools to Support Policy Development Mr Lyndwill Clarke Head: Consumer Education Ritz-Carlton Hotel Moscow 13 June 2013

Measuring Financial Literacy and Capability: Diagnostic Tools to Support Policy Development

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Mr Lyndwill Clarke Head: Consumer Education Ritz-Carlton Hotel Moscow 13 June 2013. Measuring Financial Literacy and Capability: Diagnostic Tools to Support Policy Development. Measurement of Financial Literacy in RSA. Before 2010 – Evaluation per project and programme - PowerPoint PPT Presentation

Text of Measuring Financial Literacy and Capability: Diagnostic Tools to Support Policy Development

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Measuring Financial Literacy and Capability: Diagnostic Tools to Support Policy Development

Mr Lyndwill ClarkeHead: Consumer EducationRitz-Carlton Hotel Moscow13 June 2013

11 years of consumer financial education in South AfricaThe FSB oversees primarily the non-banking financial services industry in South Africa in the public interest.

Mandated by the FSB Act No. 97 of 1990, as amended in 2000

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.

1Measurement of Financial Literacy in RSABefore 2010 Evaluation per project and programme

2010 OECD Pilot Study

2011 Baseline Study

2012 SASAS

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11 years of consumer financial education in South AfricaPrior to 2010 the only M & E we did was per project and then only separately. The OECD pilot in 2010 give us the jumpstart we required to get going.

In my presentation I will show you how we adapted the OECD pilot to suit our circumstances, our survey methodology, some findings and how we used and are using it to implement our financial literacy programmes2Why Measure Financial Literacy?Set a baseline needs/gap analysis

Influence policies, strategy and programme design

Impact assessment

(TO SEE IF CFE WORKS?)

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Financial Literacy11 years of consumer financial education in South AfricaBut first of all lets quickly have a look at why we measure Fin Lit..Set a baseline needs/gap analysisdifferentiate the level of knowledge, attitudes and behaviour amongst various socio-demographic subgroupsidentify vulnerabilities among specific groups (risk based approach) and in doing so we can set priorities

Influence and support the development of policies, strategies and design of programsImpact assessment (monitoring of progress and outcomes over time repeated measures)

34OECD Questionnaire Content11 years of consumer financial education in South AfricaThis is just a repeat of on of Adeles slides45Financial control8(23)Financial planning5(18)Products choice12(63)Financial knowledge8 (35)From Pilot to Baseline to Annual StudyBEHAVIOUR9ATTITUDE4KNOWLEDGE8Financial InclusionFinancial control8Financial planning5Products choice12Financial knowledge8 ANNUAL SURVEYOECD PILOT SA BASELINE11 years of consumer financial education in South AfricaAdded more socio demographic factors such as Age, gender, language, province, income, Rural/Urban, Education, work, Living standard

5Study MethodologySurvey conducted by Human Sciences Research Council (HSRC)Nationally representative of the population 16 years and older living in private households in the 9 provincesPrimary sampling units: 500 census enumerator areas (EAs), stratified by province, geography type and majority population groupSecondary sampling units: 7 household visiting points randomly selected per EAOne respondent 16+ years randomly selected per householdOf 3,500 addresses issued 2,518 (2,972 2011) interviews achievedResponses to the survey voluntary and confidential, collected by face-to-face interviewData collection: November-December 2012

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11 years of consumer financial education in South AfricaContracted HSRC to conduct the survey and the used the South African census enumerator areas to conduct the survey. Between 2500 and 300 people were surveyed through a voluntary face to face interview.6Financial control7Eight indicators:OECD PILOT2010BASELINE 2011SASAS 2012Indicator 1 Personal involvement in daily household money managementIndicator 2Presence of a household budgetConsidered Approach to Personal Finances Indicators 3-5Careful spendingPaying bills timeouslyClosely monitoring financial mattersMaking Ends MeetIndicators 6-7 Making ends meetMain coping responseIndicator 8 Preference for spending or saving

11 years of consumer financial education in South AfricaSummary: someone with high financial control tends to be involved in daily financial decision-making processes, exhibits careful approach to personal finances, prefers saving over spending money, and lives in a household that budgets and is able to make ends meet.7Making Ends Meet45% personally experienced income shortfalls last yearLittle difference in response between 2010 and 2012. Two common coping responses: borrowing from family/friends (41%); cutting back on spending or doing without (43%) nominal reliance of financial products.Increase in the share of South Africans cutting back on spending as a coping strategy between 2012 (43%), 2011 (35%) and 2010 (30%).Decline in the share of South Africans borrowing from family/friends as a response to income shortfall between 2012 (41%) and 2011 (55%).Most important coping mechanism for South Africans is cutting back on expenditure or doing without (31%)This was primarily a coping strategy is more common among middle income South Africans; the poor are more reliant on social networks

811 years of consumer financial education in South AfricaSignificantly consumers are cutting back more than asking their friends and family as a coping mechanism. This could be ascribed to the state f the economy with prices of food, transport (petrol), electricity increasing by higher percentages than salary increases. 8Financial Control Domain Score (2011, 2012)11 years of consumer financial education in South Africa910Financial Planning

Five indicators:OECD PILOT2010BASELINE 2011SASAS 2012Indicator 9 Tends to set and strive to achieve long- term financial goals Indicator 10Has emergency funds or rainy day fundsIndicators 11Preference for spending money vs long-term saving Indicators 12Living for today vs long-term provisionIndicator 13 Saved money in the last 12 months 11 years of consumer financial education in South AfricaSummary: someone with a high financial planning score tends to set financial goals and work hard to meet them, prefers to save for the long term and worries about tomorrow, has emergency funds in place and has managed to save recently (through a formal savings product or informal means). 10Savings Behaviour11201020112012 Paying money into a savings account322823 Saving cash at home or in your wallet223220 Building up a balance of money in your bank account 172016 Saving in a stokvel or any other informal savings club9117 Giving money to family to save on your behalf 9106 Buying financial investment products, other than pension funds354 Or saving in some other way (remittances, buying livestock or property)253 None of the Above263150Significant majority saved in at least one type of savings instrumentSigns of declining ability to save over last 3 years

11 years of consumer financial education in South Africa11Behaviour and Attitudes to long-termplanning52% of the adult population always/often sets and pursues long-term financial goals; 22% sometimes; 22% doing so seldom or never. 39% find it more satisfying to spend money than to save it for the long term (45% preferred saving and 13% remained neutral)29% reported that they tend to live for today and let tomorrow take care of itself (53% preferred to plan for tomorrow; 18% remained neutral)42% believed that money is there to be spent (37% preferred to save and 21% remained neutral).

Attitudes have not changed appreciably since 2010.but Signs of declining ability to save over last 3 years

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11 years of consumer financial education in South AfricaSignificant majority saved in at least one type of savings instrumentSigns of declining ability to save over last 3 yearsThis confirms the slide on making ends meet12Financial Planning Domain Score (2011, 2012)11 years of consumer financial education in South Africa1314Appropriate product choiceTwelve indicators:OECD PILOT2010BASELINE 2011SASAS 2012Product awareness Indicators 14 -17Banking productsCredit and loan productsInvestment and Savings Products Insurance ProductsProduct holding Indicators 18-21Banking products Credit and loan productsInvestment and Savings Products Insurance ProductsFinancial product decision making Indicators 22-23Have clear idea of product need Informed Product choice No Experience of regret about recent financial product choice Indicators 24-25Does no Regret any Key Financial decisions made in the last yearDid not Pay for Unsuitable product in the last five years

11 years of consumer financial education in South AfricaSummary: A higher product choice score is given to someone ....(A) with a broad awareness of different types of banking, credit/loan, savings and investment, and insurance products;(B) holding at least one of each of the four product types mentioned above;(C) who believes they have a clear understanding of their product needs and who undertakes detailed research before choosing a product; (D) who has no regrets about recent financial product decisions (last year) and who has not taken an unsuitable product (last 5 years14Banking Products

11 years of consumer financial education in South Africa15Main Non-Banking Products11 years of consumer financial education in South AfricaHuge disparity between knowledge and holding of products. Significant shares have banking products, but relatively low holding of other products.Informal credit and loan products were fairly uncommon.Number of South Africans who belonged to a burial society increased between 2011 and 2012Educational attainment and wealth, are strongly associated with product type awareness and possession

16Product Choice Domain Score (2011, 2012)11 years of consumer financial education in South Africa1718Financial knowledge and understandingEight indicators:OECD PILOT2010BASELINE 2011SASAS 2012Indicator 26 Basic mathematical divisionIndicator 27Effects of inflationIndicators 28Interest paid on loans Indicators 29Interest on depositsIndicator 30Compound Interest Indicator 31Risk of high return investments Indicator 32Effects of inflation of cost of living Indicator 33Risk diversification

11 years of consumer financial education in South AfricaSummary: someone with high financial knowledge and understanding has a familiarity with most or all of the basic concepts (indicators)

18Trend and Subgroup Differences on the Financial Quiz BASIC ARITHMETIC: 2010 only four-fifths answered the question correctly compared with almost nine out of ten (86%) in 2012. UNDERSTANDING OF INFLATION: more people answered this question incorrectly in 2012 when compared with 2011. UNDERSTANDING OF INTEREST AND COMPOUND INTEREST: the share answering this question correctly did not change significantly over the period. The share giving an incorrect answer on the interest rate question and compound interest question was greater in 2012 than in 2011 and 2010.

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11 years of consumer financial education in South AfricaBetter educated, wealthier individuals are more likely to answer the financial quiz questions correctly.Wide differences in knowledge of interest rates between different provinces, with residents of poorer more rural provinces reporting on average more incorrect responses

19Financial Knowledge Domain Score(2010-2012)11 years of consumer financial education in South Africa2021Overall Scores, 2011-2012 and Composite measureFinancial PlanningAppropriate Product ChoiceFinancial Knowledge & UnderstandingOverall Financial Literacy ScoreFinancial Control11 years of consumer financial education in South AfricaMethodology for overall financial literacy scoreThe score was designed in 2011 by the South African Social Attitudes (SASAS) research team using a 2010 baseline survey. The methodology used to create the financial literacy score employed the OECD/INFI methodology.Aggregation: simple additive approach (standardised indicators added together and an average domain score produced)Constructing overall financial literacy scoreIn deriving the overall financial literacy score, each of the four domains were assigned equal weightsThis means that none of the four dimensions was treated as more important than the others. The four domain scores were averaged to create the final composite indicator

21Way forward22Repeat core financial literacy core module year-on-yearNext Baseline study 2016Challenge: Integrating programme and project survey and M & E statistics into Baseline and Annual survey

11 years of consumer financial education in South AfricaFrom a policy and strategy perspective the survey data and measures has assisted by.identifying target groupsprovided comparable year-on-year measuresForm a Monitoring and Evaluation perspective:Show which socio-demographic groups being reachedWhich messages are getting through to risk groupsThe rate at which societal change is occurring

The way forward -Repeat core financial literacy core module year-on-yearNext Baseline study 2016Challenge: Integrating programme and project survey and M & E statistics into Baseline and Annual survey

22THANK YOU FOR YOUR ATTENTION23Mr Lyndwill ClarkeHOD: Consumer EducationFinancial Services Board South AfricaE-mail: [email protected]: (+27) 12 422 2819Mobile: (+27) 79 881 1805www.fsb.co.za

www.mylifemymoney.co.za

11 years of consumer financial education in South Africa23Chart185.296.1359.2547.477.585.3640.6633.651.873.7627.8713.454.677.4728.5212.569.463.577.5410.561.379.7621.949.848.269.6610.995.442.968.410.354.453.259.471.84.340.761.7810.584.338.451.722.881.741.7110.4423.2

Aware TotalAware High LSMHolding High LSMHolding Total

Sheet1AwareHoldingTotalHigh LSMHigh LSMTotalSaving Accounts85965947ATM Card78854134Debit Card or Cheque Card52742813Current or Cheque Account55772913Mzansi Account6964811Credit Card61802210Fixed Deposit Bank Account4870115Garage Card or Petrol Card4368104Post Office/Post Bank Savings Account535924Home Loan from a Big Bank4162114Savings Book at a Bank385232(None of the above)421023Banking ProductsAwareHoldingPoorMiddleUpperTotalPoorMiddleUpperTotalSavings account7788908531525847ATM card7380787824373833Debit card or Cheque card365760526152213Current or Cheque account416155552161813Mzansi account74696570179710Credit Card476669612112110Fixed deposit bank account335357482685Garage card or petrol card2648524305114Home loan from a big bank244652411584Post Office / Post Bank savings account485554547354Other bank product (SPECIFY)131920171534Savings book at a bank304241393202Cellphone account (e.g. M-PESA)14431101Domain ScoresFinancial literacy scoreFinancial controlFinancial planningProduct choiceKnowledgeProvinceWestern Cape5464465058Eastern Cape4961474443Northern Cape4957434548Free State5565534852KwaZulu-Natal5563494564North West5558554859Gauteng5660574660Mpumalanga5265474751Limpopo4757464241Domain ScoresFinancial literacy scoreFinancial controlFinancial planningProduct choiceKnowledgeEthnic GroupWhite6977635973Indian6269575467Coloured5260454755isiZulu5360484161isiXhosa5060494445Sesotho5160524551Setswana5152494653Sepedi5057494450Other African Language4857464244Domain ScoresFinancial literacy scoreFinancial controlFinancial planningProduct choiceKnowledgeWestern Cape5464465058Eastern Cape4961474443Northern Cape4957434548Free State5565534852KwaZulu-Natal5563494564North West5558554859Gauteng5660574660Mpumalanga5265474751Limpopo4757464241White6977635973Indian6269575467Coloured5260454755isiZulu5360484161isiXhosa5060494445Sesotho5160524551Setswana5152494653Sepedi5057494450Other African Language4857464244

Sheet177.2287.890.2285.2872.5679.5577.8877.5435.7557.2860.1251.9340.5660.6555.1154.8173.9968.7764.5869.7146.7466.4368.561.4833.2753.2357.148.426.0548.2851.5242.7923.5345.8651.840.6248.455.4654.3853.512.7419.0419.8217.4730.341.6940.6738.60.54.444.453.41

Aware PoorAware MiddleAware UpperAware Total

Sheet231.3252.0258.0247.2523.6136.7138.2133.455.5715.2221.9613.412.1615.8718.1212.5316.538.616.8210.491.8811.2721.159.851.956.338.085.380.464.8811.244.390.555.387.584.356.733.145.374.311.274.623.453.632.511.540.291.660.611.4101.05

Holding PoorHolding MiddleHolding UpperHolding Total

Sheet385.296.1359.2547.477.585.3640.6633.651.873.7627.8713.454.677.4728.5212.569.463.577.5410.561.379.7621.949.848.269.6610.995.442.968.410.354.453.259.471.84.340.761.7810.584.338.451.722.881.741.7110.4423.2

Aware TotalAware High LSMHolding High LSMHolding Total

546446505849614744434957434548556553485255634945645558554859566057466052654747514757464241

Financial literacy scoreFinancial controlFinancial planningProduct choiceKnowledge

68.77896976.84774763.18309858.83927273.26884562.04197769.48911256.77478553.63672666.8837751.76958160.40689344.53031346.68445155.49718352.55526459.50252748.31544740.80458161.13625150.10388259.66979148.64093244.47658945.03551551.44066459.56749552.18873444.90804451.12063550.59667552.30997749.3935346.21887653.17534349.97776757.01808649.32597643.6348849.8181247.89204257.33541246.05970442.10149944.363133

Financial literacy scoreFinancial controlFinancial planningProduct choiceKnowledge

54644650584961474443495743454855655348525563494564555855485956605746605265474751475746424168.77896976.84774763.18309858.83927273.26884562.04197769.48911256.77478553.63672666.8837751.76958160.40689344.53031346.68445155.49718352.55526459.50252748.31544740.80458161.13625150.10388259.66979148.64093244.47658945.03551551.44066459.56749552.18873444.90804451.12063550.59667552.30997749.3935346.21887653.17534349.97776757.01808649.32597643.6348849.8181247.89204257.33541246.05970442.10149944.363133

Financial literacy scoreFinancial controlFinancial planningProduct choiceKnowledge