Introduction:
Financial confidence is crucial to our and our clients’ overall well-being. It impacts our financial decisions and our emotional and mental health. In South Africa, where financial stress is prevalent, Financial Coaches can play a vital role in helping clients build and sustain their financial confidence. This article explores the findings of a study conducted by Sanlam in South Africa, shedding light on the factors influencing financial confidence. We will delve into the main drivers of financial confidence as measured by the research and provide insights into how we, as Financial Coaches, can support our clients on their journey toward financial prosperity.
How is financial confidence measured?
The study conducted by Sanlam in South Africa revealed several key drivers of financial confidence among adults in this country. These drivers can be categorised into three main aspects: financial determination, financial resilience, and financial well-being.
Financial determination refers to a proactive mindset and motivation to achieve financial goals. It involves having clear financial objectives and being committed to reaching them. The elements used to measure financial determination include:
- Financial Vision: 55% of respondents indicated they had a vision for their finances.
- Financial Goals: 61% of respondents had short-term financial goals, and 54% had long-term goals.
- Financial Learning Goals: 52% of respondents had personal goals for their financial education.
- Financial Plan: 62% of respondents had a financial plan in place.
From a financial coaching perspective, it is crucial to note that 78% of respondents are aware of their financial beliefs about debt, earnings, and protecting personal finances. However, the question arises: Are they aware of what keeps them from being financially confident and content?
Financial resilience is the ability to withstand financial shocks or unexpected financial and mental expenses. It involves having the resilience to adapt and maintain a sense of stability. It also includes having an emergency fund, insurance coverage, and a financial plan that considers potential risks and challenges. The elements used to measure financial resilience include:
- Financial Control: Only 2 in 5 respondents feel they have some financial freedom to make the choices they will enjoy in life. Coaching can address how money personality, clients’ values, and money stories influence their relationship with money and their attitude towards it.
- Financial Management: Only 46% of respondents indicated they are on track to meet their goals, and just 35% review their finances with an expert.
- Financial Skills: Only 35% of respondents trust in their own financial abilities. Coaches can empower clients to build trust and make financial decisions with confidence.
- Financial Support: Factors like access to credit, knowledge, and insurance coverage play a role in financial resilience. For example, 42% of clients indicated they do not have insurance to cover estate costs, and 34% do not have enough insurance to cover risks in the case of an emergency. Coaches can help clients address the barriers preventing them from taking action.
Financial well-being encompasses a broader sense of satisfaction and security in one’s financial situation. It involves having a sense of control over personal finances, feeling financially secure, and the ability to meet financial goals while being content about current and future financial needs. Reading through some of the feedback from the respondents, it is clear that moods play a pivotal role in how clients interact with their finances. For instance, 69% of respondents feel self-conscious and scared to talk about their finances, 81% indicated that they experience stress when dealing with day-to-day finances, and 82% disclosed that they are scared that they do not have enough provisions for the future.
Summary of some of the key learnings from the research:
The study revealed the following interesting outcomes concerning financial confidence that we, as financial coaches, can be aware of when supporting clients in building financial confidence:
- Education and Income Levels: The research found a clear link between education, income levels and financial confidence. Higher levels of education and income were associated with higher levels of financial confidence. Coaches can encourage clients to invest in their education and personal development and seek opportunities to increase their income.
- Employment Status: Full-time and self-employed individuals displayed higher levels of financial confidence than part-time workers, unemployed individuals, pensioners, and retirees. Coaches can help clients explore entrepreneurship and full-time employment opportunities to boost their financial confidence. Coaches can also assist clients in dealing with the uncertainty they may be experiencing.
- Gender Differences: Women generally exhibited lower financial resilience and well-being but higher financial determination. Coaches should tailor their approach to address the unique challenges faced by female clients and empower them to achieve their financial goals. Other research also indicates that women may feel undervalued by financial planners and coaches, highlighting the need for gender-sensitive financial coaching.
- Setting Financial Goals: The research indicated that only 39% of respondents have an actual financial goal-tracking system. Setting clear financial goals, tracking progress, and regularly reviewing financial values are essential steps in building financial confidence. Coaches should guide clients to clarify their priorities and align aspirations with their financial objectives. Strategies such as breaking goals into small milestones, celebrating achievements, and offering support through nudges can help clients stay on track.
- Age and Generational Differences: The study revealed that young adults displayed the highest levels of financial determination, but it tended to decrease after age 39. Coaches can assist younger clients in harnessing their determination by using a combination of fintech applications for financial education and planning, supported by the guidance of a financial coach or financial planner.
- Financial Education and Advice: Many South Africans trust their financial abilities but may benefit from supplementary financial education and advice. Coaches can bridge the gap between intentions and actions by providing knowledgeable guidance and acting as accountability partners.
- Socio-economic Circumstances: Socio-economic circumstances significantly impact the financial well-being of individuals in South Africa. Coaches should be conscious of their clients’ money histories, which can influence their money stories. Financial coaches can help clients create new narratives and mindsets that support them in building the life they want and fostering a healthy relationship with money.
- Life Stages: Financial confidence tends to decrease with age. Coaches can help clients navigate different stages and life transitions of their financial journey by ensuring they make the right financial decisions at each stage, giving them more choices and boosting their financial confidence. Especially looking at longevity, financial determination becomes more important later in life, but clients need to build resilience and determination as early as possible to live a meaningful life until the end.
Summary:
Financial confidence is a dynamic aspect of personal finance that various factors can influence. Financial coaches in South Africa are crucial in helping their clients understand and address these factors to achieve financial prosperity. As financial coaches, we can empower our clients to build and maintain the confidence needed to make sound financial decisions and improve their quality of life by supporting them in cultivating a positive relationship with money, creating awareness, building healthy financial attitudes, and adopting good money habits. In the next newsletter, we will explore financial stress and anxiety to understand better what it means to us and our clients.
