One of the most important steps towards financial freedom is an honest and clear personal budget. Image: iStock
Harnessing the power of money today will secure its posterity, writes Carol Mazaka.
The controversial Green Paper on Comprehensive Social Security and Pension Reform which was recently released by the Social Development Department, and which was subsequently withdrawn, has undoubtedly left a lot of people thinking about how we deal with it. financially of ourselves and our families as we age and after we die.
After all, wanting to give your children a better future – a future with less financial hardship than you had – is a universal desire. A key element of this consideration is to focus on the role of generational wealth.
Broadly speaking, this is the ability to transfer financial and other valuable assets to your children and future generations. It can take many forms and can include cash and savings, property, life insurance, investments and trusts, family businesses, and family heirlooms with financial value such as jewelry and works of art. art.
In South Africa, the ability to build generational wealth is not just a factor in a family’s willingness to focus on building wealth for years to come.
Ours is a country struggling with a past of dispossession and segregation which has built a solid foundation for the inequality of wealth to endure well beyond the end of apartheid. This story has been made worse by years of weak economic growth, a global recession and the Covid-19 pandemic, which has pushed the country’s unemployment rate to 44%. Naturally, this reality makes the longing for generational wealth seem like a pipe dream for countless families living in abject poverty.
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On the other hand, international real estate consultant Knight Frank estimated in his 2021 Annual Wealth Report that South Africa has 44,605 wealthy people (with liquid assets worth over $ 1 million). ). [R14 million]) and 742 very wealthy people (with liquid assets worth over $ 30 million) last year.
Compare these figures with Population estimate at mid-year 2021 from Stats SA for South Africa of 60.14 million people and this means that these groups represent respectively 0.07% and 0.0012% of the population.
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When it comes to understanding how wealth is transferred from generation to generation, a recent working paper from the United Nations World Development Economics Research Institute “Estimating the Distribution of Household Wealth in South Africa ”noted that there was a lack of data available to track the dynamics of intergenerational wealth. in the countryside.
CONCENTRATION OF WEALTH
This means that we know that there is a concentration of wealth, but we do not understand how and to what extent this wealth is either lost or passed on in families.
Despite these complex challenges, generational wealth should not be seen as out of reach for all, but for already wealthy South Africans – just as tackling inequality should not be a simple choice between increasing or decreasing the number of people living in poverty. ‘wealthy individuals.
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More and more young South Africans from increasingly diverse backgrounds are receiving post-school education and are now earning reliable incomes. Fostering the creation of generational wealth for these South Africans must be a priority for the financial sector. It is a concrete way of helping to build an intermediate level of future wealth that combats inequalities.
Our approach to helping South Africans create wealth must take into account the different circumstances of people.
Our country is known to have a bad savings culture and high consumer debt. Young South African workers also often support their families or have dependents, often referred to as black taxes. These people may be the first in their family to receive post-school education, and there may be significant demands on their income from family members who themselves have little or no income. With a high and persistent unemployment rate, it is likely that more South Africans will find themselves in this difficult position.
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A recent survey of our customers highlights this pressure. It showed that most of those surveyed don’t have generational wealth, but over 80% felt they were supposed to create it for their families. Only 39% understood what generational wealth was and how to create it. For these individuals and their families, generational wealth needs to be rethought with a realization that there is no need for an all-or-nothing approach.
On the contrary, the concentration of wealth and the high levels of poverty discussed above show that for many South Africans the journey to generational wealth creation must begin with small steps and a grassroots approach.
Tackle debt, make informed decisions about financial services (including understanding the opportunity cost of purchasing funeral coverage versus life insurance), understanding what constitutes generational wealth and the options available for saving and investing are vital first steps on this path.
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Equally imperative is a change in a family’s approach to finances. In families where wealth and finances are openly discussed and where financial education is a priority, successive generations can begin to inherit the wealth, benefit from it, invest it, grow it and then leave it to their children.
We believe that access to free, high quality financial education can help South Africans in these circumstances to be empowered to say, ‘Generational wealth starts with me’, thus taking the first steps in leaving a more secure legacy. financially to their children.
This is why our financial education program, Truth About Money, is available free of charge to South Africans who wish to undertake this journey. It provides valuable insight into generational wealth creation, regardless of where you started from.
Building generational wealth is possible for many more families in this country, but financial institutions will need to work hand in hand with them. This is by no means the solution to the problem of inequalities in South Africa, but it is a vital step worth taking and we are proud to do more to put more families in South Africa on. their way to wealth.
Mazaka is Director of Consumers at 1Life Insurance