We started with financial illiteracy and the scarily low number of adults in South Africa who know what terms like inflation and compound interest actually mean. What’s more, this lack of understanding can be seen across the entire spectrum of education and household income levels throughout the country.
The 3 most basic terms that you need to understand are inflation, compound interest and the time value of money. Once you’ve got to grips with these 3, you can start to understand the long-term impact of the financial decisions that you make today and be better prepared.
Next up, we looked at overconsumption or lifestyle creep. This is when you start to spend more on non-essential items or luxuries. The more you spend on non-essentials, the less you have to put into savings or to spend on essential items.
It’s a strange thing that the more we earn, suddenly… the more we need… Share on X
Not the best strategy for financial growth.
We then covered being debt burdened. It’s scary how easy it is to get into debt these days and how completely overwhelming that can be if you don’t have a handle on your spend for non-essential items. Around 70 to 80% of disposable income in South Africa goes to debt.
The most important thing I can say here is that you need to make sure you understand the type of debt you have, that you can afford it, and that you steer clear of dodgy debt with very high interest rates!
Finally, we talked about having insufficient savings. This is usually the double-whammy combination of lifestyle creep and having too much debt. Most people don’t even realise that they don’t have enough savings to cover their essential expenses until it’s too late.
I know, it can sound like it’s all doom and gloom – but it’s not! We’re here to try and help nudge you into better financial decisions – and yes, that is exactly why we’re called Nudging Financial Behaviour! If you start changing your money habits now, you can start to save far more efficiently.
OK, enough of my soap box – let’s get into the rest of the list of pitfalls. In this post, we are talking about irrational behaviour as a whole, risk aversion, lack of motivation and poor planning (remember “failing to plan is planning to fail”, I’m going to keep repeating it).
Feel free to rather watch this episode on our Youtube channel or listen to it on your favourite podcast platform. Don’t forget to like and subscribe.
