CAROL MAZAKA: Financial education key to creating more generational wealth

Wanting to give your children a better future — one with fewer financial challenges than you had — is a near universal desire. Mothers and fathers want the comfort of knowing that no matter what happens to them, they will be able to ensure their children have a good life.

The contentious “Green Paper on Comprehensive Social Security and Retirement Reform”, recently published by the department of social development and subsequently withdrawn, has undoubtedly left many thinking about how we should look after ourselves and our families financially as we age and after we die.

A key part of these considerations needs to be the role of generational wealth. However, in SA the ability to build generational wealth is not just a factor of a family’s willingness to instil values of wealth building for years to come. We are a country dealing with a past of dispossession and segregation, which built a firm foundation for wealth inequality to continue well beyond the end of apartheid.

This history has, of course, been compounded by years of low economic growth, a global recession and the recent Covid-19 pandemic, which has driven up the country’s unemployment rate to a staggering 44%. This reality makes the aspiration of generational wealth but a pipe dream for countless families living in abject poverty.

On the other hand, international real estate consultant Knight Frank’s annual Wealth Report estimates that SA had 44,605 high-net-worth individuals (liquid assets of more than $1m) and 742 ultra-high-net-worth individuals (liquid assets of more than $30m) in 2020. Comparing these numbers with Stats SA’s midyear population estimate for SA in 2021 of 60.14-million people means these groups represent 0.07% and 0.0012% of the population respectively.

When it comes to understanding how wealth is transferred from generation to generation, a recent UN World Institute for Development Economic Research working paper, “Estimating the distribution of household wealth in SA”, notes that there is a lack of data available to track intergenerational wealth dynamics. This means we know there is wealth concentration, but we don’t understand how, and to what extent, this wealth is either lost or passed down in families.

Despite our history and the complex challenges faced since democracy, generational wealth shouldn’t be considered an aspiration for only those who have it already, and out of reach for everyone else. Similarly, tackling inequality needn’t be a dichotomy between increasing or decreasing the number of high-net-worth individuals. In fact, changing these perceptions is vital for changing the trajectory of inequality.

Many more young South Africans, from increasingly diverse backgrounds, have post-school education and are earning reliable incomes. This is something to be proud of. Nurturing wealth building for these South Africans needs to be a focus for the financial sector in SA. This is a tangible way we can help build a middle tier of future wealth that combats inequality.

Savings culture

But we must be mindful of the reality these individuals may face. SA is notorious for having a poor savings culture and high consumer debt. Young working South Africans also often support families or have other dependents. A recent survey of our customers showed that most don’t have generational wealth, and more than 80% felt they were expected to create it for their families. Yet only 39% understood what generational wealth is, and how to create it. This is the difficult context in which we want to help South Africans build wealth.

For these individuals and their families, generational wealth needs to be reconsidered, with a realisation that there need not be an all-or-nothing approach. If anything, for many South Africans the journey to build generational wealth needs to start with small steps and a basic approach. Tackling debt, making better informed decisions about the financial services that are bought (including understanding the opportunity cost of buying funeral cover over life insurance, for example), and understanding what constitutes generational wealth and the options available for saving and investment, are all vital first steps in this journey.

We believe access to high-quality and free financial education can help South Africans familiar with these circumstances be empowered to say: “generational wealth starts with me” and take the first steps to leaving a more financially secure legacy for their children. That is why our financial literacy programme, “Truth About Money”, is available free of charge to those who wish to start their journey. It gives valuable insight into building generational wealth, regardless of where you are starting from.

Building generational wealth is possible for many more families now than in the past, but it will take financial institutions working hand in hand with them so they make wise choices through financial education. This is by no means the solution to SA’s inequality problem, but it is a vital step worth taking. 

• Mazaka is consumer director at 1Life Insurance.