In South Africa we use the word sharp to mean everything is alright and we usually try to share the message that everything is sharp here with the rest of the world. 

But everything is not alright - not if we are honest about the finances of the country and in our households.

With our ever-increasing debt levels and deteriorating economic situation, we would hope that consumers would protect themselves by growing their savings, diversifying their investments and actively securing sufficient risk cover. 

The reality, however,  is that most of us depend on credit - both formal and informal - to assist us in tough economic times, primarily because of a lack of both financial planning and financial literacy.

In homes where families avoid speaking about the household finances, the likelihood of indebtedness increases and saving for retirement goes out the window. The failure to budget contributes to financial burdens cycling through generations. 

This reality exposes the gaps in our decision making, the lack of awareness of financial planning and the complex manner in which information on financial services is offered.

You must however be cautious not to think that if you are financially literate it means you don’t need financial advice. 

You are financially literate when you understand the purpose of the financial product and its risks and rewards. Financial advice is about assessing the suitability of the product to meet your investment goals. 

Due to the lack of financial advice many consumers use savings products, such as bank accounts, that over time reduce their purchasing power, rather than investing in investment products designed to grow their savings to meet their long-term goals.  

So, how do we get everything to be sharp?

Financial literacy can positively impact the economy, as it promotes participation by both consumers and businesses.

As a small-business owner you must actively encourage retirement savings for your employees. You also need to establish a retirement fund or bring in a financial adviser annually to educate your employees. The aim is to empower your employees and to increase their financial awareness for the benefit of their families.

At his State of the Nation address last week President Cyril Ramaphosa shared that due to the low levels of growth, the country is unable to generate an income that covers its expenses and that some spending has been misdirected towards consumption.

The consequences are higher debt levels and revenue redirection to service this debt. 

Unfortunately, a huge portion of the country’s population can exchange notes regarding this very issue. However, in our personal capacities, we can start to change our situation - by cutting down spending in unnecessary areas. This requires us to be more resourceful and flexible in our budgeting.

The growth in financial markets both locally and internationally forces us to revise how information is communicated to consumers and by whom. 

If you look at how pyramid schemes are marketed, you will notice that the so-called rewards or big opportunity is being presented and not the high-risk probability associated with it. 

Consumers who join in these schemes are often unable to assess the product thoroughly as they don’t know what questions must be answered before they take the next step. This requires a skill that can be learned through a deeper relationship with a banking institution for example.

An extra threat to financial literacy is that some consumers are challenged in reading and writing. Savings groups like stokvels have in some way provided a safe zone for these people to speak about their finances. If these groups work alongside the formal financial services industry, it will undoubtedly increase demand in formal savings and make them aware of the need for retirement planning.

The not-so blunt truth about financial literacy is that it has the power to positively impact economic participation, encourage retirement savings from SMEs and drive transparency and competitiveness in the financial services industry. Sharp! 

* Kunene is an associate financial planner at BDO Wealth Advisers