Behavioural theory shows that we humans don’t always make the most rational choices that serve us well in future. But changing five simple behaviours can have a lasting positive impact on our financial health. Here’s how.
South Africans are not financially healthy. As a nation we typically save less than many other countries, we have high levels of debt and many of us are simply not sufficiently prepared for retirement. There may be many causes of this, but research from Discovery Bank suggests that poor financial choices and behaviours are contributing to this situation.
Discovery Bank’s research into the reasons why people are typically not able to meet their financial obligations shows that five behaviours, if left unmanaged, are linked to three risks that lead to 80% of financial defaults. These behaviours include spending more than we earn, not saving regularly, not having proper insurance in place for adverse events, not paying off property and not investing for the long term.
Dinesh Govender, Discovery Vitality Chief Executive, explains that although good financial health may sound easier said than done, the risks of not changing financial behaviours are significant. “Individuals who show poor behaviour are far less financially resilient. Over time, these behaviours result in unaffordable levels of debt, being exposed to unexpected expenses or loss of income, and having insufficient income in retirement.”
Why we should focus today on becoming financially healthy in future
Surprisingly, financial health seems to be far less about how much you earn, but more about what you do with your money daily, monthly and yearly. Lower-earning individuals who engage across the five controllable financial behaviours are typically significantly better off in terms of their financial health, than those individuals who show poor financial behaviours but earn more.
Discovery Bank found that for example, 35.9% of individuals with a personal income between R500 000 and R1 million per year, have missed repayments on their unsecured credit facilities in the past 12 months, including 9.1% who have missed three or more consecutive repayments. These figures are only marginally better than those of individuals earning less than R250 000.
Govender explains, “Earning a high income does not necessarily equate to being financially resilient or healthy, or even financially free. Whether we are high earners or average earners, financial health is determined by our behaviour and how we manage our money on a daily basis. Being aware of how our actions around money can impact our financial future, helps protect us against serious financial pitfalls down the line.”
Discovery Bank’s research highlights that people who engage in healthy financial habits such as saving at the start of the month, and using a budget on a regular basis, generally achieve better financial outcomes.
“People who are in the habit of saving regularly at the start of every month, tend to have larger emergency savings balances and are able to better cope with the financial challenges of unforeseen life events, than individuals who save what is left over at the end of every month. Similarly, people who are in the habit of budgeting tend to have more money left at the end of the month; are more in control of their finances and have a better understanding of financial services and products.”
All of this boils down to some good advice that is not new: have a financial plan, do a budget and follow through on it every month, manage your spending, pay off debt, and save regularly.
But how do we change? The challenge lies in understanding how our financial behaviour today can impact our financial health over time, and then finding ways to improve our money habits. This was Discovery Bank’s approach with Vitality Money – the behaviour change programme that helps clients understand their financial health, improve their behaviour and track their progress. Based on Vitality’s learnings in helping people change their health behaviour – exercising more, eating better and doing preventive health screenings – Vitality Money combines financial education tools, personal goals and rewards to help encourage people to manage their money better. The programme is designed around an understanding of the key behaviours that have the biggest potential to impact financial outcomes positively over time, and encouraging people to change these behaviours.
Vitality Money developed a financial health score based on the key financial behaviours that help improve financial health and resilience over time. The programme, which forms an integral part of the Discovery Bank product offering, will encourage clients to learn more about their financial health and gain greater awareness of financial habits, behaviour and overall financial health. The score also indicates whether a client may be experiencing material hardship or largely secure financial circumstances. This understanding is critical in helping us take the necessary steps to improve our financial status and health over the long term. Learn more here.
Are you aware of your financial risks?
Did you know that these three financial risks – an unaffordable level of debt; being exposed to unexpected expenses or loss of income; and insufficient income in retirement – lead to 80% of events where people are not able to meet financial obligations? If you’re concerned about any of these risks, it’s time to turn to a bank that helps South Africans become financially healthier.
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