5 signs you might be financially illiterate

Ever wondered why your career’s going well but your investment portfolio is stuck in neutral? BDO financial advisor Mpumie Makhanya thinks she might have the answer…

1. You save all your money in the bank

While cash is still king, it’s not ideal for investments longer than a year. There’s no denying cash is the safest asset class around – but it doesn’t beat inflation rates. There are many other asset classes that provide inflation-beating returns, such as shares, property and commodities. Unit Trusts are a great way of combining and diversifying these asset classes to suit your investment goals, term and risk appetite.

Not only is your love of cash making you miss out on good returns, but the fact that you can easily access your savings in seconds may lead to impulsive spending habits. Fixed-term savings accounts with a penalty fee can help – but they can also be costly in the long run.

I’m not saying there’s no place for cash. But please only use your bank’s savings account for emergencies and short-term goals as opposed to long-term investing.

2. You prefer Ponzi schemes over actual investments

The thought of doubling your money in a day and growing it like grass excites you. The “invest R1,000 and receive R50,000 in two weeks” ads are definitely a scam as there’s no investment that returns over 100% in such a short space of time. Yes, high risks = high returns … But this isn’t one of those instances. You’re simply donating your money to a fraudster.

Growing your money and net worth requires patience and consistency. Remember: if it sounds too good to be true, it probably is.

3. You don’t know how to manage debt

You’re comfortable taking out loans to throw parties, to fund lavish holidays and to splurge on designer clothing – but you baulk at putting money in your RA or unit trusts. Using debt to buy expensive items is far from ideal, more so when you’re repaying the loan amount with interest. Take note of debt traps like balloon payments on cars, and expensive home loans. Your creditor may lure you into believing you can afford it. But can you, really? Would you rather “look” rich or be actually rich?

You’ve probably also heard the classic Rich Dad, Poor Dad tactic of using debt to purchase assets. I also agree with this but it needs a strategy and proper planning. Debt needs to be used wisely since it is mostly a long-term commitment that is to be avoided whenever possible.

4. All you know about money is what you learned in school

Scholar, it’s time to read actual books on finance, watch webinars, and subscribe to finance newsletters. This will assist you with making the right money decisions and receiving insights on things like the latest tax laws that can save you money on tax deductions. Medical and retirement fund deductions, coupled with Tax-Free Savings Accounts can help to significantly reduce your tax burden.

5. You don’t have a financial plan

You earn, spend, try to save and that’s really it. You save because you were taught “it’s the right thing to do” but you don’t put much thought into it. Your savings don’t have goals and that’s why you’re easily tempted to “only live once”. Your money needs to have a plan if you want it to grow beyond your current level. The tricky thing about this is that if you don't plan, plans will still be made for you – they just won’t be the plans you wanted.

The bottom line

Did you recognise bits of yourself in the article? Don’t stress! It’s never too late to become financially literate, and there’s a plethora of resources to help you achieve this goal. Take your pick from DIY investing books and articles through to blogs, podcasts and social media influencers. Or get a financial advisor to help you to brush up on your financial A, B, Cs.