Jashwin Baijoo, Tax Committee member at the South African Institute of Professional Accountants (SAIPA) and Head of Strategic Engagement and Compliance at Tax Consulting South Africa reflects on what the country’s youth need to do to overcome the persistent challenges of high unemployment and over indebtedness, and to create meaningful financial freedom
In its 2022 Financial Sector Outlook study on South Africa, Genesis Analytics, in partnership with the Financial Sector Conduct Authority (FSCA) reported that over 50% of the country’s credit active population are over-indebted. More people than ever are using credit to make it to the end of each month, fuelling a revolving door of consumer debt which is increasingly difficult to escape.
South Africa has a relatively young population, which should be a great opportunity to drive productivity. But it is in the youth where the bulk of the country’s unemployment sits. With the overall unemployment rate now at 32.7%, South Africans between 15 and 24 years old are now unemployed at a rate of 61%, according to Statistics South Africa.
In an environment like this, where we have the biggest divides between rich and poor, it may prove exceedingly challenging to instil a meaningful savings culture to lift people out of poverty, especially when young people are conditioned into survival thinking and instant gratification.
The challenge we face, amongst others, is not in spending, but what we spend it on. Compared to 58% of Americans reporting that they have invested in the stock market, only 37% of South Africans traded shares, according to a Finder study. Even property ownership is low, with just a third of residents owning their own property.
Granted, each person’s wealth creation journey is unique to them, and like anything worthwhile it takes time to achieve true financial freedom.
Financial freedom is more than just about paying off debts, and it need not be a goal to live without ever having to work again. Placing too much pressure on oneself can lead to frustration and going back to old bad habits of money management.
A more balanced view can simply be to make wise decisions that lead to a fulfilling life where bills aren’t a constant worry. Financial freedom can mean being confident one’s financial decisions are moving that person or organisation to a better position, especially at retirement.
It may take some tough decisions for a brief time, as an individual and as an organisation, cutting certain activities that seem to just burn money.
A good place to start for anyone, at any level of income, is to ensure that each month, one can satisfy their monthly credit card balance timeously. This is a good indicator that you are not spending beyond your means and allows room for the next step of responsible investing. Investing may seem like the right thing to do, but outstanding debt can very easily outstrip any capital gains, even on the best performing investment.
Once debt is cleared, beginning to invest a portion of your salary each month, for instance in a tax-free savings account, is a great way to start. This doesn’t have to be a large amount. For someone with a net take home of R10 000, investing R2 000 may not be viable. However, they can begin with smaller amounts, gradually building up to investing more over time.
Starting with end in mind, better decisions can be made, especially when temptation to satisfy instant gratification arise. With a concrete goal in mind, not just of the amount of money, but the type of life desired, you can set in motion the process and be better able to identify the kind of information you may need along the way.
Ultimately, financial freedom is attainable for anyone, and should not be seen as the exclusive realm of the rich. It is within reach for anyone earning an income, provided you have the financial awareness and understanding, correct information and the discipline to make the best strategic decisions and short-term sacrifices to begin planting the seeds for true generational wealth.
