Retirement funds can help solve our enormous education challenge

Retirement funds, long the backbone of savings in South Africa, may help in solving the formidable education challenge the country faces. With COVID-19 still impacting heavily on education and average financial literacy levels already low, Nashalin Portrag, Head of FundsAtWork at Momentum Corporate, says the involvement of retirement funds in boosting education outcomes and financial literacy is good for both the country and retirement outcomes.

As we wait in anticipation for the release of the 2020 matric results next month, there is wide acknowledgement that the South African education challenge has never been greater. A 2019 IMF working paper titled “Struggling to make the grade” points out that while South Africa has made strides in basic and tertiary education enrolment, the country still suffers from significant challenges in the quality of educational achievement by almost any international metric.

Our education challenge is complex and multi-dimensional, and now COVID-19 and lockdown have added new dimensions.

Portrag says, “Given the enormity of the education challenge, it should be an all-hands-on-deck approach, with stakeholders from all corners of the country thinking out of the box and contributing to the solution. This should include the custodians of savings in the country – retirement funds.”

He continues, “Retirement funds are particularly well positioned to contribute towards solving this challenge. Many funds communicate regularly with members through multiple channels. Plus, the key retirement fund players - which include trustees, service providers and financial advisers - have a wealth of financial knowledge and expertise. The requirement introduced by the default regulations, that all members should have access to benefit counselling, also opens a new channel for educating and empowering members in financial matters.”

According to Portrag, some progressive umbrella retirement funds already give the children of members access to online student support platforms. This value-added benefit is available to members and their school-going children at no additional cost. “These benefits appeal particularly to Millennials and Generation Zs, who place great value on education and life-long learning, and are fully immersed in all things digital,” says Portrag.

The Momentum/Unisa Consumer Financial Vulnerability Index has shown repeatedly how poor financial literacy and financial capability - the latter being the ability to use financial knowledge to make smart decisions - are key drivers of financial vulnerability. This in turn impacts on retirement outcomes.

Portrag says low educational levels also translate into poor financial wellness. Momentum/Unisa research shows a strong relationship between the level of education and the state of financial wellness in households. For example, the research shows that only 3% of households where the highest education level was completion of primary school are financially well, with 33.2% of these households financially exposed and 60.1% financially unstable.

In contrast, 56.7% of households where the financial knowledgeable person has a tertiary qualification are financially well, while 36.9% are financially exposed. If we focus on households where the highest qualification is matric, only 22.1% of these households can be classified as financially well, with 51.4% financially exposed and 25.7% financially unstable.

It seems that while a higher education level does not guarantee financial wellness, it certainly assists.

Digital channels are an important part of the solution, and the restrictions of COVID-19 and lockdown have certainly highlighted the need to increase access to these channels and e-learning for many more South Africans. Even before COVID-19, there was high growth in education technology globally, with global EdTech investments reaching US$18.66 billion1 in 2019 and expectations for the overall market for online education projected to reach $350 billion by 20252.

Research from technology company Aura Interactive suggests that online learning not only takes less time but also increases retention of information. On average, students retain 25 to 60% more through online learning, compared to 8 to 10% in the traditional classroom setting.

Portrag says, “Online learning also has tremendous application in adult learning, and can be used very effectively by retirement funds to improve the financial literacy of members.

For example, Momentum Corporate’s umbrella fund hosted a number of webinars in 2020 specifically designed to improve members’ financial literacy. Over 5 000 members attended these webinars over the course 2020, with more member webinars planned for this year.”

Portrag concludes, “By actively rising to the challenge of improving education outcomes and members’ financial literacy, retirement funds not only help to address a huge national challenge but also support their core goal of improving retirement outcomes.”

ENDS