Abstract
South African households don’t save enough to ensure financial freedom after retirement. This article poses the following question: do life stages have a significant impact on the financial products used by households? The question is asked in order to identify possible interventions that could increase financial freedom. This study found that life stages have a significant impact on South African households’ selection of financial products. The use of financial products for each of the levels of the financial product usage hierarchy increases as the age of the household head increases and when the size of the family increases, the only exception being single-parent families. The study indicated that financial literacy programmes should focus on young couples and young families, as there is a notable increase in their financial product usage. The study also found a very low usage of wealth management products by South African households and suggests that policymakers consider the introduction of an incentive to increase household’s usage of these products.
Highlights
According to the South African Reserve Bank, South African households own assets worth R9.25 trillion, with net wealth estimated at R7.7 trillion (South African Reserve Bank, 2014)
The first adjustment that was made is that automatic teller machine (ATM) and debit cards included in the original model as part of level one were excluded from the product list for this study
Botha (2010) suggests that collective investments can be used for wealth management, the views of the expert respondents were that these products are mainly used for shorter-term savings; the products was moved from level 4: wealth management products to level 3: basic savings products
Summary
According to the South African Reserve Bank, South African households own assets worth R9.25 trillion, with net wealth estimated at R7.7 trillion (South African Reserve Bank, 2014). Motives for saving and financial literacy were identified as the two important factors that impact on a household’s saving and savings behaviour (Goodall & King, 2010). The importance a household places on each of these saving motives influences the financial products used (Canova, Rattazzi & Webley, 2005; Keynes, 1936; Eriksson & Hermansson, 2014). De Clercq and Venter (2009) and The Financial Services Board (2011:60) found that according to national and international studies, financial literacy has an impact on people’s perceptions of the importance of saving as well as their knowledge of the financial products that can be used to achieve their saving objectives (saving objectives are based on the saving motives of a household). Improving people’s financial knowledge will help them to understand better why they must save and which financial products they can use to save
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