A conversation on Facebook caught my attention a few months ago. A friend wanted to buy a car. She had just clawed her way out of debt. She had been previously blacklisted, she wrote. The banks refused her vehicle finance because she did not have a good credit record. She could not understand how she was expected to get a credit record when no one would take a chance to offer her credit. Not even a department store would give her an opportunity to purchase merchandise on credit, to pay it back every month. How was she to build a credit profile for six months after which time she would have a chance to apply for vehicle finance, she asked exasperated. I used the word “credit” five times on purpose.
This column is about financial literacy. This is not a space to bash each other about being illiterate on financial issues. We must attempt to understand reasons behind our spending as a people if we are ever going to even consider creating wealth.
It is against this backdrop that I found myself especially excited when I was invited to attend a Talk by African Women Movement (AWM) entitled, “Mind the Gap”. Initially, I thought it would be some drivel about how Millennials do not and cannot survive in traditional corporate spaces where one is expected to clock in at 8:00 and leave between 16:30 and 20:00. This is always followed by the fantastical ability of the Gen X to follow rules, even to their own detriment and how Baby Boomers – the people we call bosses – just do not want to resign.
I was pleasantly surprised.
The first speaker – young, beautiful and black – focused her presentation on the different spending and investment habits of Baby Boomers (1946 to 1964) versus those of their Millennials/Gen Y (1981 to 2000) children. She spoke of monthly grocery buying, bread refrigeration or daily spaza shop runs and much lower combined salaries of mom and dad – sometimes just mom, in the 1990s. Yet our parents never ran out of food. We always carried a skaftien and sometimes there was pocket money.
You with your convoluted inflation argument, please sit down. We are talking about apartheid salaries here and for some, expensive Model C and private school education. This is how we learned Pilchard tin fish was a food group.
But the Baby Boomer is not perfect. Their ability to save on spending did not automatically present them as suave investors. This generation’s obsession with funeral policies and life covers is all too familiar. I mean, how many life covers does one need? How many times do you plan to die? I won’t even speak to the obsession of refrigerators and washing machines paid over five years. However, they can be forgiven, especially in the case for South Africa.
The average Millennial, in contrast, is just a sad story. The instant gratification generation. The Instagram picture posting; “lets Facebook our false lives for a false sense of well-being” and “lets Tweet about nothing and start a revolution” generation is just sad. Sad. For starters, most of us make more money than our parents. Some even ten times more yet the increase in monthly disposable income has not made us take the time to educate ourselves on financial instruments and wealth creation.
The question we need to ask yourself is, “What kind of legacy do you want to leave? What do you want to leave your children and better still, do you think about seven generations from now? What mark would you have left?”
Now that we have identified our financial illiteracy problem, the next step would be to think honestly about our spend and budget habits.
The young, gorgeous woman spoke of Stokvels.
“You could save as little as R100 to R500 a month,” she said.
If you are employed and are not saving this little a month, it would be good to consider where your money goes. I can see how I can be accused of privilege. This is true; however, it is also true that our mothers and grandmothers were members of Stokvels. These Stokvels were not sustainable in the long term and themselves not income generating, but this is where we should come in.
We need to make investments a fashionable lifestyle. We need to start advising each other about how to go about saving and investing and what to invest in. We must speak about subsistence farming. We must discuss property. But also as important, we must speak about the basics: the savings account with the best rate; the Stokvel money that need be invested in interest-returning portfolios; create Stokvels to buy farms, land, property, shares (while we wait for expropriation and nationalisation without compensation in our lifetime) instead of investing in a Stokvel to buy a microwave. We must build inter-generational wealth.
To my Facebook friend who wanted to buy a car I replied as follows: Do not open an account in an attempt to create debt to prove that you have a credit record. Rather go to your current bank and open a savings pocket, a money market account or an investment account. Since you were willing to give R3500 of your monthly income to a bank for car repayments and another R800 for insurance – to prove you can afford to pay for a car, create a stop order that will withdraw R4 300 a month from your primary cheque account into a savings or an investment account. It is always best to choose one which you do not have direct access. Now, if you can do this without faltering for 12 months, then you know you can afford a car. If you falter, you don’t owe anyone anything. Or do what I do, save that amount for the same duration you were willing to give money to a bank – five years. After five years, you will have R4300 * 12* 5 = R258 000. This is would be much more if you account for compound interest. You must also consider that a car needs maintenance and petrol.
We waste so much money.
This does not mean you can’t treat yourself to travel, adventure, love, a fantastic wig or a pair of Louis Vuitton shoes or bag.
The rules are easy. Live within your means and create wealth for seven generations.