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MONEY JUNE 2021
E YOUNG PEOPL NEY AND THEIR MO
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CONTENTS FEATURES 4 things you shouldn’t buy on credit 4 You’re only young once. Become money-wise now 6 Starting a side hustle: 3 ideas for young people 8 Why you need the lifeline of income protection
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Young and healthy? You still need medical cover
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REGULARS Rands and Sense with Sharon Moller
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Fact File: Parents, kids and money survey
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Money Basics with Martin Hesse
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Money Quiz 18 Planning Perspectives with Palesa Tlholoe
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Important contacts and links
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FROM THE EDITOR
Money, like emotions, is something you must control to keep your life on the right track – NATASHA MUNSON Author and motivational speaker
CONTACT US PUBLISHER Vasantha Angamuthu vasantha@africannewsagency.com MONEY EDITOR Martin Hesse martin.hesse@inl.co.za DESIGN Mallory Munien mallory.munien@inl.co.za PRODUCTION Renata Ford renata.ford@inl.co.za BUSINESS DEVELOPMENT Keshni Odayan keshni@africannewsagency.com SALES Charl Reineke charl@africannewsagency.com Kyle Villet kyle.villet@africannewsagency.com ENQUIRIES info@anapublishing.com
GEORGE Bernard Shaw’s well-known witticism “youth is wasted on the young” has a corollary: “Wisdom is wasted on the elderly.” Older folk view young people as having an almost irrational disregard for risk, but the truth is that they often aren’t fully aware of the risks they face. They tend to form risky personal relationships, engage in risky behaviours such as drinking too much and driving too fast, and exhibit a risky approach to money when it comes to taking on debt, spending and investing. They also have a burning need to be accepted by their peers, which means feeling pressured into exhibiting the outward trappings of success, even when their earnings might not warrant the extravagance. As they mature they will begin to feel more comfortable in their own skin and the need to put on a show for others will fade. They will start to show heightened responsibility towards their loved ones (and themselves) by toning down their risky behaviours. On the financial side, they will stop living in the moment and start thinking about the future. More experienced in life’s ups and downs and more aware of their own mortality, they are likely to take out life insurance and consider saving for a rainy day. This transition can take many years; it can happen earlier or later in life, and for some it hardly happens at all. The danger is that extreme behaviour in the early phase can ruin one’s life for good. Education in all its varied forms helps to transfer the collective wisdom gained through life’s lessons to younger generations. This publication hopefully contributes in a small way to that education.
Martin Hesse
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4 THINGS YOU SHOULDN’T BUY ON CREDIT MARTIN HESSE THEY make it so easy, don’t they? They give you a store card and you can just go crazy, shopping to your heart’s content. It’ll backfire on you in the end. But they don’t care. They just keep adding interest and admin charges to your account balance (because you’re only paying the suggested minimum monthly amount, not realising that it’s barely making a dent in what you owe). And when you start skipping payments, they simply
turn you over to their lawyers, who add their exorbitant fees to your debt, which is by now unmanageable. Worst of all, you have nothing to show for it, because your credit was on consumables or goods that plummet in value as soon as they leave the shop. Do you know the difference between good debt and bad debt? Good debt is a loan you have on something that grows in value, such as a property. A student loan is also considered
good debt, because you’re using it to invest in yourself. Bad debt is money you borrow to buy things you consume or that decrease in value. The only type of bad debt that is unavoidable for most people is vehicle finance. Debt on the following four categories of items should be avoided as far as possible. 1. CLOTHES If you want to live within your means, your clothes expenditure should be incorporated into your
monthly budget. You may be much more limited in what you can buy (and wear), and you may have to give expensive designer brands a miss. But spending on clothes only what you can afford each month will teach you how to be disciplined with your money. 2. FURNITURE Finance charges on items such as lounge suites bought on credit are outrageously high. You can end up paying more than double the selling price if you pay it off over a few years. If you’re starting off, rather scour the classified ads and second-hand shops for items to buy cash. With a bit of creativity and a coat of paint, you can give old furniture new life.
3. LUXURY HOLIDAYS It’s all too easy to whip out your credit card when paying for a holiday package to some exotic destination. But the higher repayments will be tough on your monthly budget. Rather do it the other way around: put aside money each month in an account which pays fair interest until you’ve saved enough. You’ll enjoy the trip a whole lot more.
4. GROCERIES This is the biggest no-no of all. If you are going into debt just to feed yourself, you are in serious financial trouble. Supermarket chains are highly irresponsible in letting you do this on their store cards, but you could equally be doing it on a credit card. To avoid getting into debt on your credit card, you need to pay back the entire amount owing every month.
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YOU’RE ONLY YOUNG ONCE. BECOME MONEY-WISE NOW! FOLLOWING the principles of compound interest, young people have the benefit of time, which, if they consistently invest it in the right things today, will generate good outcomes in the future. “There is no better time than now, during National Youth Month, to encourage young people to become financially literate, in order to empower them, prepare them for adulthood and instil good financial habits as asoon as possible, to ensure a better, more prosperous future for themselves and their families,” says John Manyike, head of financial education at Old Mutual. South Africa is a youthful country, with over a third of our population under the age of 35. With around 66% of them being unemployed, it becomes even
more important to encourage those that are fortunate enough to be employed to be financially literate and to look at the benefits of effective money management, savings and investing. Financially literacy must not be underestimated. Not only will the youth benefit from financial knowledge that contributes to their personal financial security, but their financial wisdom will also play a critical role in improving our nation’s savings levels. With a better savings culture, our government will be able to invest in infrastructure projects that will create jobs for other young people and result in a positive ripple effect for the economy and long-term benefits for future generations. When you have just started
working, it may feel strange to be thinking about the financial building blocks you will need during your life and even about retirement. After all, shouldn’t this time be spent on enjoyment, buying dream cars, travelling, and all the good things that money can buy? That may be, but it is also the ideal time to use your youth to your benefit and begin investing in your future. MAKE WEALTH CREATION A PRIORITY Unemployed South African youngsters joining the labour market late are in a race against time to close the asset accumulation gap. Entrepreneurship for the youth is critical and should take centre stage instead of formal employment. We need inspired
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young people to boost the economy by being employers instead of being employees. Everyone’s financial situation is different, but the steps to having the money you need as you pass through the different life stages are simple.
track of your means and meeting your financial obligations and goals. Apply the 50/30/20 rule: 50% of your income on essentials, 30% on what you want, and 20% on savings, investments, and retirement funding.
COMPOUND INTEREST IS KEY Compound interest is an essential concept to understand when managing your finances. It can help you earn a higher return on your savings and investments. Think about compound interest like what happens when the “snowball effect” occurs. A snowball starts small, but the more snow that’s added, the bigger it gets. As it grows, it becomes bigger at a faster rate. Compound interest is interest earned on your capital and on accumulated interest. In other words, you’re earning interest on interest.
2. Pay yourself first Ensuring that money for long and short-term savings is taken off your income before you begin spending will prevent the urge to buy that pair of new sneakers. Left alone, these funds will benefit from the magic of compound interest and automatically grow. Part of investing in yourself is controlling spending. Using digital banking apps and the available financial tools on the web can help ensure that you don’t spend what you don’t have.
OTHER SIMPLE STEPS TO FOLLOW 1. Start and stick to a budget This is the best way to be the boss of your money, by keeping
3. Enquire about a retirement annuity (RA) Speak to a financial adviser about an RA. Acquiring an RA means committing yourself to funds that you can only access after you reach the age of 55.
The advantages of RAs are that they are tax-efficient - you can deduct your contributions from your taxable income. 4. Protect yourself and your assets The best time to buy life insurance is when you are young. Premiums are primarily based on age, so the younger you buy a policy, the more coverage you can afford and the cheaper your premiums. Add wisdom to your freedom For most, your 20s and early 30s are the most exciting formative years of your life. They are about finding yourself, enjoying freedom, learning, buying what you want and hopefully building a prosperous and sustainable career. With a bit of additional financial wisdom thrown into the mix, this knowledge could be the very platform that could enable you to build your financial legacy, and following a financial plan could see you accumulating wealth, securing a happy retirement, and living your exceptional life, Manyike says. | Supplied by Old Mutual
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STARTING A SIDE HUSTLE: 3 IDEAS FOR YOUNG PEOPLE While making ends meet might be a key driver in the meteoric rise of the side hustle, it is by no means the only reason.
THE side hustle has a firm place in our pandemic-era lexicon, but it has, in fact, been around a lot longer than you might think. The phrase was first used during the recession of the 1950s, when people had to find additional ways to supplement their income in order to make ends meet. So it stands to reason that as the world enters another recession, the side hustle has regained our collective attention. And the numbers clearly demonstrate the rising interest in alternative revenue streams: a recent survey reported that as many as one in three South Africans earn income from an extra job, while social media platform Twitter recently revealed a staggering 295% rise in the number of mentions of “side hustle” on its platform. And while making ends meet might be a key driver in the meteoric rise of the side hustle, it is by no means the only reason, says Litha Maqungo, social media and communications specialist at Metropolitan GetUp, a funeral and disability cover division of Metropolitan. “Another contributor is access: thanks to the acceleration of the digital economy, it is easier than ever to start a business or leverage your talents for monetary gain, and the opportunities are now but a mouse-click away.” The other – and arguably most significant – factor is personal fulfilment, something we may not always get from our eight-to-five job that pays the bills, says Maqungo. A 2020 report in the Harvard Business Review found that 73% of those surveyed began a side hustle to enhance their overall satisfaction in life, stating: “Side hustles empowered individuals so that they felt they were the agent in charge of their work, which led to being emotionally and cognitively invested in the side hustle.”
Whether it’s funds, fun or fulfilment you’re after, if you’re thinking about starting a side hustle but don’t know where to begin, Maqungo shares three potential avenues that you might want to consider.
1. BLOG YOURSELF A BUSINESS
Influencing is big business, but be warned, establishing the kind of following that leads to financial gain doesn’t simply happen overnight. “It takes dedication, creativity, authenticity, and most importantly, passion, says Maqungo. “Those who’ve started the most successful blogs or social accounts – more common these days than long-form blogging – have typically done so through finding their unique voice, which resonated with a likeminded audience. Once you have established your niche, Maqungo suggests that you start reaching out to brands that you personally love, and which connect with you and your lifestyle. “Find out who the right person is to speak to at the company, and then pop them a brief but friendly introduction email, giving them an overview of your platform and highlighting the value it could offer their brand. “More and more brands are looking to work with micro-influencers, as they are considered credible and trustworthy within their communities. So don’t think that you need to have thousands of followers to spark a brand’s interest,” she says.
2. HUSTLE YOURSELF INTO HOSPITALITY
The hospitality industry was one of those that were hardest hit by the pandemic, with eateries and bars all across the world forced to close their doors. Yet, it is also anticipated to be one of the quickest sectors to
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MAKING ENDS MEET MIGHT BE A KEY DRIVER IN THE METEORIC RISE OF THE SIDE HUSTLE; IT IS BY NO MEANS THE ONLY REASON
recover, says Maqungo. “After the last year of social distancing, people are craving human interaction, and the simple act of connecting over a meal has become more significant and special. “As past economic crises have shown us, as soon as the situation starts to improve, tourism will return, and with it, a subsequent boom in hospitality. Consider taking up a part-time position as a hostess, waitress, bartender or shop assistant, specifically in an establishment known to be attractive to tourists, and you will find yourself in a great position once the vaccine roll-out gains traction and economic recovery starts," says Maqungo.
3. EXPLOIT YOUR TALENTS
Are you great at graphic design or a wizard with words? Maybe you’re a natural with kids or famous for your cakes and cookies. Whatever your talent, there are ways to make money from it. “If you’re not sure where your skills lie, start by
asking those closest to you – it might be that they can help you identify something you’re good at that you’ve always taken for granted.” Once you have identified your talent, first assess whether it needs to be practiced or honed. “It might be, for example, that you are great at doing your own make-up, but you don’t have much experience working on other faces. In this case, a make-up course will help you learn the basics, and guide you in the products you need to get started.” Social media provides a low-cost way to market yourself to others, but when starting out, referrals are often the best way to get your hustle out there. Ask your network of friends and family, who can attest to your skills, to share the word about what you offer. “Take it one step further by offering a complimentary or discounted service to new customers or those who refer others to you, and you will start to see the inquiries come in,” says Maqungo. | Supplied by Metropolitan
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WHY YOU NEED THE LIFELINE OF INCOME PROTECTION Young people may not need life cover, if they have no dependants, but they do need to protect their ability to earn an income for the rest of their working lives. LAST year, 59% of all Covid19 related Sanlam income protection payouts were to people younger than 39 years old. This statistic underlines the critical importance of income protection for young professionals, says Sanlam product development actuary Karen Bongers, noting that longterm loss of income due to illness or injury is the single biggest financial risk young working people face. Beyond the financial impact of illness and injury, she says economic realities are resulting in South Africans battling to meet their monthly financial obligations, which makes income protection even more important. Research by Catalyst Fund Managers shows that, over the past year, 41% of respondents relooked their finances and insurance cover, highlighting the financial uncertainty felt by so many. Difficult economic times exacerbate the inability of most people to carry themselves financially, if an illness or injury means they are unable to work, even for a short period. The
peace of mind linked to income protection cannot be overstated. In a recent study, PayCurve, which provides people with early access to their salaries, noted that almost 80% of South Africans are seeking unsecured loans to meet their monthly financial obligations. Another study, by debt counselling firm DebtBusters, showed that 1.6 million South Africans capitalised on payment holidays, with resulting debt repayments of R20.7 billion. “Imagine a 28-year-old primary breadwinner being rendered unable to work for six months. The knock-on effect for them and their family would likely be immense,” says Bongers. With South Africans’ household savings rate just 0.7% in the third quarter of last year, based on a Trading Economics report, few households are likely to have emergency funds to cover lost income for more than one or two months. She says: “Of course, the impact is much worse if the inability to work is permanent. Our claim statistics show that it’s
not just older individuals who need income protection. The permanent loss of an income is particularly concerning for younger people, who have many more years of earning potential ahead of them.” KEY FACTS Bongers outlines some key things to know about income protection: 1. How is income protection different from disability cover? The terms can be used interchangeably, but income protection generally refers to products that pay a monthly income if you are unable to work, either temporarily or permanently, due to illness or injury. Disability cover generally refers to benefits that pay out a lump sum if an illness or injury renders you permanently unable to work. A combination of both could help you cover certain once-off lump sum expenses, with the income protection cover providing a long-term replacement for your monthly income.
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2. Who qualifies for income protection cover? Generally, you need to be employed, have a qualifying occupation and be medically insurable to meet the requirements to take out income protection. However, certain products can expand to accommodate those not meeting the above criteria. Impairment income benefits can provide income cover to those who do not qualify for occupational disability cover, such as stay-at-home parents.
3. Does your income protection include impairment cover? Living with a permanent impairment, like a physical disability or an illness that affects your lifestyle, can result in additional monthly expenses even if you can still work. Some products have the option to select the extent of impairment cover, depending on your needs and budget. In conclusion, Bongers says: “Income protection is an essential conversation to have with your financial planner in order to ensure the financial
security of yourself and your loved ones, especially in the current climate of uncertainty where even short-term losses can wreak havoc. Young people often have an ‘it won’t happen to me mentality. That’s completely understandable, but the reality is that they face the biggest risk, due to the many years of earning potential ahead. Having the right policies in place provides peace of mind should an unexpected curveball occur.” | Supplied by Sanlam
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Rands & Sense
Key money habits you can teach your kids
IN THE latest iteration of global investment firm T Rowe Price's 13th Annual Parents, Kids & Money Survey (see page 13), 63% of respondents said they learnt about money from their parents. At the same time, 41% said they don't like to talk about finances with their children — with the leading reason (56%) being that they are too young to understand. But avoiding the subject ultimately disempowers your children and can even risk their long-term financial health, precisely the opposite of what this month's Youth Day celebrations are about. Money lessons aren't about how much money is available to you or your child, but about building healthy habits for the future, which is why it's important that parents teach financial literacy from an early age. Saving and investing are important actions that allow us to manage unforeseen life events and foster stability in a world that is often unstable. Instilling in your children an understanding of the importance of this is crucial in cultivating life-long financial health.
EMBRACE HEALTHY FINANCIAL HABITS
Sharon Moller
This will give your teens and preteens a sense of what is in their control when it comes to money. In teaching your child about managing their money, you also start to build awareness around concepts like inflation, tax, and market fluctuations, which I am sure we all wish we learnt about much earlier in life.
SET A GOOD EXAMPLE
The experiences our children have while growing up shape their relationship with money. If we as parents do not demonstrate healthy, positive attitudes and behaviours, then we run the risk of passing on these bad habits onto our teens. Some of these bad habits include spending on credit and not saving; not having a purpose or defined
goals when it comes to investing; not having a set budget for each month’s expenses; and placing too much emphasis on how much money we have rather than on how skilfully we manage it. Cultivating awareness of our thoughts, feelings and behaviour around money – and the values and beliefs behind these – paves the way for conscious, positive habits into adulthood.
START THE CONVERSATION
Talking about money and what it means to the family's collective dreams, goals, and day-to-day household management is so important — more so when there is a shortage of money. In the T Rowe Price study, 80% of children respondents said it was very important that their parents speak with them about saving and spending wisely, indicating an appetite for information that parents may not always be aware of. Of course, this doesn't take away from the initial apprehension parents may have about discussing finances, but any compromises that we need to make during these times need to be clearly understood by your teens.
HERE ARE A FEW QUESTIONS THAT PARENTS CAN ASK TO GET THE CONVERSATION STARTED:
♦ How important is money to you? ♦ If you had lots of money, what would you do with it?
♦ How do you feel about saving for something you want? What do you wish you could make your money do for you? ♦ What have you noticed about how mom and dad work with money? ♦ Do you have any questions about money and investing? Do you understand why saving and investing are so important? ♦ As a family, in what ways do you think we could be more responsible with money? Sharon Moller is financial planning coach at Old Mutual Wealth
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LE FACT FI
PARENTS WHO MISMANAGE MONEY ARE MORE RELUCTANT TO DISCUSS MONEY WITH KIDS – US SURVEY A SURVEY carried out in the United States at the beginning of last year found that families who try to “keep up with the Joneses” are more reluctant to have money conversations with their children and are more likely to have risky financial behaviours. Overall, many parents reported having some reluctance discussing financial topics with their kids. The 12th annual Parents, Kids & Money Survey by investment house T Rowe Price sampled more than 2 000 parents of 8-year-olds to 14-year-olds. “Discussing money with kids is particularly important in the midst of the coronavirus pandemic, when many families have been affected – from smaller consequences like a cancelled vacation to a parent who has lost a job,” says Roger Young, a senior financial planner at T Rowe Price.
THE SURVEY FOUND THE FOLLOWING:
♦ Keeping up with the Joneses: 35% of parents surveyed said they are always trying to “keep up with the Joneses.” Of those, 53% said they hide purchases from their spouses, 60% have a budget but rarely follow it, 59% rely on credit cards to cover monthly expenses, and 72% live pay-cheque to paycheque. ♦ More likely to pull from retirement savings: those trying to keep up with the Joneses were three times more likely to have taken money from their retirement savings at least twice during the past two years. ♦ More reluctant to discuss money matters with their kids: parents trying to keep up with the Joneses were more reluctant than their counterparts (62% vs 30%) to discuss financial topics with their kids. Although the majority of parents surveyed agreed that it’s important to have discussions with their kids about saving money and spending money (85%), setting financial goals (80%), and family finances (50%) and they agreed that such discussions make a difference (60%), many respondents (41%) said they have some reluctance to discuss money matters, and only 22% of parents follow T Rowe Price’s recommendation to discuss money matters at least weekly.
♦ Kids follow their parents’ spending examples: 71%
of parents trying to keep up with the Joneses said their kids usually spend most of their allowance right away, compared with 40% of their counterparts. ♦ Parents think schools should play a role: 40% of parents said they would rather have their child take a finance class versus teaching them themselves, and 66% said they wished they had received more financial education at school.
FINANCIAL LITERACY IN SOUTH AFRICA
In a 2017 study by the Human Sciences Research Council, commissioned by the Financial Sector Conduct Authority, South Africans scored an average of 54 points out of 100 on a financial literacy scale. As would be expected, there was a correlation between education level and financial literacy score. People with a primary school education only scored 50 points; those who had completed their secondary education scored 58 points, while those who had a tertiary education scored 67 points. “The future of financial literacy in South Africa is the youth and the focus of existing and future literacy interventions must prioritise this age cohort. Financial education is an enabler and can give young people opportunities to grow businesses and better navigate the labour market,” the authors of the report, Benjamin Roberts, Jarè Struwig, Steven Gordon and Thobeka Radebe, wrote.
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MONEY BASICS
with MARTIN HESSE
SLOW BUT SURE WAY TO GET YOURSELF OUT OF DEBT DEBT is like deceit: a relatively minor transgression can trigger a series of increasingly serious transgressions, each to cover up the previous one, until the situation is worse than anything you could have imagined. The scenario might look something like this: Transgression no. 1 You don’t pay off the full amount on your credit card because you have to settle an exorbitant dentist’s bill that the medical aid wouldn’t cover.
Transgression no. 2 (some months later) You miss a payment on your car because the debt on your credit card has climbed to the point where it’s a struggle even to make the minimum payment, let alone pay the full amount. Transgression no. 3 (another few months later) You take out a personal loan at a prohibitively high interest rate to
get your arrear car payments up to date, after some threatening letters from the vehicle finance company. Deeper and deeper … There’s only one respectable way to break the spiral, and the sooner you do it, the easier it is: swallow your pride, own up to your mistakes or weaknesses, and make amends. Having covered this topic extensively, cobbled with a good dose of common sense, I offer the following get-out-of-debt plan:
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♦ Swallow your pride and admit you are in trouble. If you’re single, this is hard enough, but if you are in a relationship or have dependants, you need to bring them with you on your journey. Explain to your loved ones you are having financial difficulties. Reassure them it’ll all turn out all right, as long as everyone gets used to consuming less and trying to live more frugally. ♦ Determine the depth of the **** you’re in. You need to figure out whether, with a determined effort, you can climb out of the hole yourself, or whether you are in so deep that you need professional help. If such a large portion of your income is going towards servicing debt that you don’t have enough left over for the basics, such as food and transport, you probably cannot do it alone: you’ll need to see a debt counsellor. ♦ Do your homework. Going
back over a few months, make a detailed list of your income and expenses for each month, grouping your expenses into debt repayments, essential expenses, and non-essential expenses. By the way, DStv is a non-essential: you can go without watching the World Cup in the comfort of your home; you can’t go without a roof over your head.
♦ Draw up a frugal-living
budget. You can’t be spending more than you are earning, so first cut back on the non-essentials until expenses equal income. Then you need to cut some more – even a saving of R500 a month will help. Oh, and there’s something else to cut, using a sharp pair of scissors: your store cards and credit cards. You’re allowed to keep your bank debit card.
♦ Stick to your budget, with your partner’s support. And make positive of your efforts: “Look how much we’re saving by eating
out only once a week”, or “We pride ourselves on wasting as little as possible and recycling where we can – it’s our contribution to the environment.”
♦ Now tackle the debt. Put the
R500 (or more) you’re saving into paying off the smallest debt with a high interest rate. This is likely to be a store account, a credit card account, or a personal loan. It may take several months to pay off the account, which we’ll call account A. Once you’ve finished paying off A, take the whole amount you were paying on A (the regular repayment plus the R500), and add it to your regular repayments on account B, another account with a high interest rate. When B is paid off, you will have an even larger amount to pay off account C: in addition to the regular
payment on C, you add the R500 plus what would have been your regular payments on A and B. Get it? On each successive account the amount you have available will be more than on the previous one. So you’re turning the vicious cycle into a virtuous one. Once you’re at a debt level you can live with (the remaining debts should be only the longterm, low-interest ones such as vehicle loans and your home loan, and realistically their combined repayments shouldn’t be more than a third of your income), you can switch to a “maintenance diet”, by still trying to be as frugal as possible while indulging yourself now and again. At this stage you might even begin something that you never thought possible: investing.
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YOUNG AND HEALTHY? YOU STILL NEED MEDICAL COVER TONY SINGLETON reminds us that while older people face a higher risk of serious illness, young people are not immune. MANY people are struggling with reduced income as a result of the pandemic, and when budgets are tight, it is easy to think that things like insurance and medical cover are not a necessity. Furthermore, South African GDP saw its biggest contraction in a century, highlighting the devastating effect of the virus. When it comes to medical aid cover and health insurance like gap cover, however, this thinking could not be further from the truth. While illness and dread diseases such as cancer mainly affect those age 66 and above, they do occur in people of all ages, and Covid-19 is unpredictable, with more than 200 deaths in South Africa in 2020 occurring in people under the age of 40. Medical expense shortfalls could financially cripple young people who do not have savings built up, especially families just starting out. DISEASE AFFECTS YOUNG AND OLD While the majority of those who have been severely affected by Covid-19 have been older or have had existing comorbidities, the reality is that young and seemingly healthy people have also ended up
in hospital and even in intensive care. Although Covid-19 is a prescribed minimum benefit (PMB) condition (a life-threatening condition that medical schemes must cover from your risk benefit), not all treatments are covered as such, which means that those affected could end up with related medical expense shortfalls. Cancer is another disease that affects young and old, including children. Treatments are typically extremely expensive, may not be covered as PMBs, and even if they are, could be subject to co-payments. The shortfalls from cancer treatments can be significant and will have to be covered by the patient or their family. Pregnancy and childbirth are also areas that could lead to significant medical expense shortfalls, with complications, intensive care stays and even congenital defects are real possibilities. Illness and disease are stressful events, and worrying about finding the money to pay bills only adds to the strain. LATE JOINER PENALTIES IMPOSED Another important factor to
consider is that both medical aid and gap cover providers impose waiting periods for cover, as well as late joiner penalties, which have been approved by the Council for Medical Schemes, for those who join after the age of 35. This penalty takes the form of a higher monthly rate for membership for joining at a later life stage, when you are more likely to need expensive treatments. For medical schemes, this penalty is calculated using your age as well as the number of years you have not had medical cover since the age of 35 – between one and four years is an additional 5%, five to 14 years an additional 25%, 15 to 24 years an additional 50% and more than 25 years over age 35 is 75%. Gap cover penalties are calculated differently depending on the provider, but members who join after age 65 will have higher premiums. PROTECTING YOUR FINANCIAL FUTURE When you or your loved ones are ill, the last thing anyone needs is to be choosing treatments based on what you can afford. Financial stress places a huge burden on anyone, and it can
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make you sicker and cause mental health issues. Planning for the future and covering what you can is the smartest move you can make. While many young people cannot afford comprehensive medical scheme cover, they also cannot afford the medical expense
shortfalls that would result from serious illness or dread disease if they are on less comprehensive medical scheme options. Reducing your medical scheme cover and supplementing it with an affordable gap cover solution might be an option. However, it is always best
to consult your financial adviser to ensure you have the best solution to protect your health and financial wellbeing today and in the future. Tony Singleton is the chief executive of Turnberry Risk Management Solutions.
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Money Quiz Test yourself on your financial knowledge
Test yourself on your financial knowledge 1. Which of these is good debt? a) Car finance b) Home loan c) Debt on a credit card d) Credit agreement on a lounge suite 2. What percentage of a South African general equity fund portfolio can be invested outside South Africa (i.e. globally including the rest of Africa)? a) 10% b) 20% c) 30% d) 40% 3. What type of fund invests predominantly in long-term bonds? a) Multi-asset flexible fund b) Multi-asset income fund c) Money market fund d) Interest-bearing variable-term fund 4. What is the name of the US investment bank that collapsed in September 2008? a) Goldman Sachs b) Lehman Brothers c) Salomon Brothers d) Merrill Lynch 5. Which of these companies is not listed on the JSE? a) Capitec b) Pick n Pay c) Impala Platinum d) Tencent ANSWERS: 1b, 2c, 3d, 4b, 5d, 6a, 7c, 8a, 9b, 10d.
6. What certification do members of the Financial Planning Institute have in common? a) Certified Financial Planner b) Chartered Financial Analyst c) Chartered Accountant d) Certified Money Counsellor 7. Who is the Tax Ombud? a) Muvhango Lukhaimane b) Judge Ron McLaren c) Judge Bernard Ngoepe d) Adv Nonku Tshombe 8. Which government body is responsible for the financial stability of the banking system? a) The SA Reserve Bank b) The Department of Trade and Industry c) The SA Revenue Service d) The Financial Sector Conduct Authority 9. Roughly what percentage of total revenue for the state does personal income tax constitute ? a) 30% b) 40% c) 50% d) 60% 10. At what rate is income in an inter vivos trust taxed? a) 25% b) 30% c) 40% d) 45%
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Planning Perspectives
Turning passion into profit
Palesa Tlholoe
JUNE is Youth Month, when we remember the young people who gave their lives in 1976, fighting for freedom and equal education under apartheid. Nearly half a century later, however, the harsh reality is that young people still don’t have much to celebrate: the unemployment rate is sky high and there’s no solution in sight to the ongoing student loan crisis. But despite the hardships they face, young people today are brave enough to be different. Sthandiwe Msomi (21 years old) – a full-time student at Wits University and co-founder of The Finance Gym, an online toolkit to help improve financial literacy in South Africa – summed it up: “Our generation has said ‘no’ to the old way of life,” she told me. “We value our unique skills and we want to find a way to make our passion become our day job.” It’s an admirable idea, but turning your passion into profit is incredibly difficult in real life and requires a total reboot of the way we think about financial education. Entrepreneurship skills should be taught to kids in primary school, and parents have to be advocates of the change they want to see in society. You can’t say, “Do as I say and not as I do” anymore, because your 14-year-old will just say, “Why?” Let’s have a look at three simple but powerful principles that we can all introduce into our lives, so that we model a better future for our children. MINIMALISM Where finances are concerned, minimalism is about ignoring frivolous distractions and focusing on the things that are important – it’s about setting money aside for tomorrow’s needs instead of spending it on today’s wants. Should you classify your passion as a need? Of course! But like any other need, you need to think and plan for the long term. You might have to consult with a professional, such as a life coach or business
coach, to help you make money from your passion, but if you work hard and follow the process all the way through, you will see results in time. FRUGALITY Being frugal means being economical with what you have – it’s a tough concept for many people to grasp! As humans, we like to throw things away, get new things, and spend, spend, spend… In a business context, frugality means when you land a big project that pays you well, you still act with caution when spending it, saving the rest for the future. It’s a lesson best learnt at home. If parents demonstrate skills like good cashflow management, even if it’s just by balancing the home budget every month, then future entrepreneurs will be at a massive advantage when they launch their own businesses. CONTENTMENT When it comes to being content, the world of business closely mirrors that of social media: if you’re not satisfied with who you are, your goals, and how you’re going to achieve them, then you’ll blindly follow anyone and anything that is trending. If you want to turn your passion into a trade, make sure it’s not one of those trends that is here today and gone tomorrow. Talk to people in the industry you want to get into – you’ll find that us adults aren’t all boring and unhelpful! We’ll happily share the lessons we have learnt and offer guidance where we can. From a money management point of view, it’s also a good idea to consult with a Certified Financial Planner so that you can draw a clear line between your personal finances and the money you want to put into your business venture. Having a safety net in place is always a good idea when you’re planning to take a big leap! Palesa Tlholoe, CFP, is co-Founder and a wealth manager at Imvelo Wealth
INFORMATION
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click on the links to visit the website
Here are sources that can help you with financial education, give you more information on savings and investments, and afford you recourse if you have a consumer complaint or a complaint against a financial services provider
FINANCIAL EDUCATION Financial Sector Conduct Authority MyMoney Learning Series https://www.fscamymoney.co.za South African Savings Institute #WaysToSave https://waystosave.co.za/ BANKING Ombudsman for Banking Services ShareCall: 0860 800 900 or phone: 011 712 1800 Email: info@obssa.co.za www.obssa.co.za CONSUMER ISSUES National Consumer Commission Toll-free: 0860 003 600 or phone: 012 428 7000 Email: complaints@thencc.org.za www.thencc.gov.za Consumer Goods and Services Ombud ShareCall: 0860 000 272 Email: info@cgso.org.za www.cgso.org.za
FINANCIAL ADVICE Ombud for Financial Services Providers phone: 012 470 9080 or 012 762 5000 Email: info@faisombud.co.za www.faisombud.co.za INVESTMENTS Financial Sector Conduct Authority ShareCall 0800 110 443 or 0800 202 087 info@fsca.co.za www.fsca.co.za LIFE INSURANCE Ombudsman for Long-term Insurance ShareCall 0860 103 236 or phone: 021 657 5000 Email: info@ombud.co.za www.ombud.co.za MEDICAL SCHEMES Council for Medical Schemes MaxiCall: 0861 123 267 Email: complaints@medicalschemes.com or information@medicalschemes.com www.medicalschemes.com
Credit Ombud MaxiCall: 0861 662 837 or phone: 011 781 6431 Email: ombud@creditombud.org.za www.creditombud.org.za
RETIREMENT FUNDS Pension Funds Adjudicator ShareCall: 0860 662 837 or phone: 012 346 1738 Email: enquiries@pfa.org.za www.pfa.org.za
National Credit Regulator ShareCall: 0860 627 627 or phone: 011 554 2600 Email: complaints@ncr.org.za or (debt counselling) dccomplaints@ncr.org.za www.ncr.org.za
SHORT-TERM INSURANCE Ombudsman for Short-term Insurance ShareCall 0860 726 890 or phone: 011 726 8900 Email: info@osti.co.za www.osti.co.za
TAX Tax Ombud ShareCall: 0800 662 837 or phone: 012 431 9105 Email: complaints@taxombud.gov.za www.taxombud.gov.za PROFESSIONAL ORGANISATIONS Fiduciary Institute of Southern Africa (FISA) phone: 082 449 2569 Email: secretariat@fisa.net.za www.fisa.net.za Financial Planning Institute of South Africa (FPI) Phone: 011 470 6000 Email: info@fpi.co.za www.fpi.co.za South African Institute of Tax Professionals (SAIT) Phone: 012 941 0400 Email: info@thesait.org.za www.thesait.org.za FINANCIAL DATA ◆For ◆ the latest financial market indicators, go to https://www.iol.co.za/businessreport/market-indicators ◆For ◆ the latest quarterly unit trust performance, go to https://www.iol.co.za/ personal-finance/collective-investments ◆To ◆ look up performance of a particular unit trust fund go to https://www.iol.co.za/ personal-finance/fund-look-up
