The Institute of Race Relations recently reported that 20 years of BEE initiatives have yielded disappointing results: only 15% of the relevant South African population directly benefited1. One of the key lessons is that redistribution by itself is not the answer for long-term transformation. Beyond increasing employment, what’s needed for transformation for all South Africans may well be helping individuals to learn how to effectively harness and deploy their financial resources to meet their own needs now and in the future.
Rethinking the traditional employee benefits model
Employee benefits should have represented the primary focus of South Africans’ savings and protection strategies. But in the necessary shift from the defined benefits (DB) model to the defined contribution (DC) model, the delivery of these critical social protections became fragmented, due to the risk transferring from the employer to the individual.
The financial planning burden of a lifetime and the ultimate achievement of financial well-being now rests squarely on the shoulders of individuals. Yet in many ways, the individual has never been less engaged – and for good reason. Even if benefits are only delivering a fraction of an individual’s retirement needs, this is of little consequence if individuals and their families are not even able to address their day–to-day financial needs.
In last year’s edition we concluded that people would continue to remain disengaged unless, as an industry, we addressed each individual’s full financial journey over their lifetime, and not simply their retirement.
For many stakeholders, this suggested a greater focus on enhancing financial capability, in other words, an individual’s ability to make good financial decisions. But financial capability simply isn’t engaging enough. To secure financial transformation for all individuals, we needed to shift the conversation beyond building financial capability towards enhancing financial well-being. The concept of financial well-being is something distinctively different from simply expanding a person’s financial awareness, capability or wellness. It strives to capture the individual’s willingness to engage, because it allows individuals to create a direct link between financial capability and achieving their own prioritised ends for themselves and their families – to secure what matters most to them, which is to provide for who matters most to them – their loved ones.
As Gale, Goetz and Britt point out in the Journal of Financial Therapy: “An individual’s and a family’s financial health can vary from the perspective of different family members (both within and across generations), across regions of the country, continent or world, across religions, across ethnic and cultural backgrounds, and across generational cohorts. Can a family be financially sound, but individually and interpersonally unhappy? Can an individual or family be financially at risk, but emotionally and relationally very happy? What role does family history, personal characteristics,religious and spiritual beliefs, and physical health have in one’s definition of financial health? How does the difference that one has between defining their wants and needs determine financial well-being? What roles do compassion, charitable giving, consumerism, social justice and concern for the environment have on financial well-being?2”
Financial well-being is a radical departure from what the financial services industry has been built on. It requires a far more collaborative interaction between the individual and their service provider on every financial touchpoint, whether it’s about their health, their long-term savings and short-term emergency cushions, their income and asset protections, or their funding requirements to service dreams for themselves and their families.
And this is where our thought-leading concepts make the boldest suggestions.