FINANCIAL LITERACY CHALLENGES IN SOUTH AFRICA

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BACKGROUND TO THE RESEARCH TOPIC

Every person associated with an organisation, be it a public listed company, a small private company or a government institution, forms a link in the organisation’s information chain. Although the aim of financial information is to communicate meaning, the information per se, contains no meaning. The meaning exists in the minds of the sender and the receiver of the information (Thill & Bovée 2002:13). Thus, to communicate financial information effectively, the receiver of this information must share similar meanings for the words and symbols used by the sender.

STATEMENT OF THE PROBLEM

The problem addressed in this thesis relates to the complexity of the financial literacy phenomenon to act as an interface between financial and economic information and the decision-making proficiency of individuals in organisations. This phenomenon can be conceptualised in the following dimensions, which will be discussed in more detail in section 1.2.1. Firstly, it involves the haphazard use of the term “financial literacy”. Secondly, it relates to the perception that financial literacy consists only of two separate systems (the information system and the human behaviour system) and is not also considered as one encompassing process. Thirdly, the gap between complexfinancial and economic information, on the one hand, and the decision makers’ mental processes, on the other, is difficult to reconcile, without using an interface. In the last instance, the education of financial literacy, especially in South Africa, is not possible without a clear identification of the diversity of the local organisational fraternity.

Perspectives on the problem statement

The general use of the term “financial literacy” poses a problem because of the different meanings attached to it. Various research studies (Dopfer 2005; De Beer 2006) have shown that the case of terminology is considered to be one of the primary obstacles in transcending meaning. Dopfer (2005:18) contends that disciplines such as economics suffer from a language deficit and this is ahandicap both for theoretical expression and its communication. A distinction is necessary between the general and specific meaning of the term “financial literacy”. De Beer (2006:56) states that “certain words become overburdened with meaning while others are hallowed out and, in the process, stripped of their meaning”. The term “financial literacy” consists of the words “financial” and “literacy”, both of which are used to represent a myriad of issues that can easily lose their relevance when used together.

Previous and current research on this subject

Previous studies, in both the financial and psychological literatures, suggest that different people may process the same information differently, depending on factors such as their knowledge structure, experience and cognitive characteristics (eg, Gregory 2004; Cheng et al 2003; Goldberg 2001; Anderson & Krathwohl 2001). According to Smith and McLaughlin’s (2003:6) research,satisfying the physiological needs of individual employees correlates directly with the quality of an individual’s performance. They further believe that the need for self-actualisation pioneered by Goldstein and polished by Maslow is critical to the development of cultural traits that successful knowledge management implementation demands. This confirms the fact that the human behaviour system plays a vital role in the decision-making process and merits further investigation.

CHAPTER 1 INTRODUCTION AND ORIENTATION
1.1 Background to the research topic
1.2 Statement of the problem
1.2.1 Perspectives on the problem statement
1.3 Research aims and objectives
1.4 Rationale for the study
1.4.1 Importance of the research
1.4.2 Previous and current research on this subject
1.4.3 Beneficiaries of this research
1.5 Research methodology
1.5.1 Literature study
1.5.2 Empirical research
1.5.3 Problem solving by using the Mitroff model
1.6 Chapter layout
CHAPTER 2 FINANCIAL LITERACY CHALLENGES IN SOUTH AFRICA
2.1 Introduction
2.2 Political ideologies and their impact on the country’s human capital
2.2.1 Democracy
2.2.2 Democratic capitalism
2.2.3 Democratic socialism
2.2.4 The democratic South African economy at the start of the 21st century
2.3 The requirements for financial literacy in the implementation of the government’s programmes of action
2.4 The impact of the South African education system on financial literacy
2.4.1 Education in the pre-1994 dispensation
2.4.2 Education in the post-1994 dispensation
2.4.2.1 Financial literacy at school level
2.4.2.2 Financial literacy at tertiary level
2.4.2.3 Adult education in financial literacy
2.5 Other financial literacy programme initiatives in South Africa 5
2.6 Financial literacy challenges in South Africa
2.6.1 Cultural diversity
2.6.2 Loss of human capital
2.6.3 Transformation and empowerment
2.6.4 Globalisation
2.6.5 Interaction and engagement with the financial sector 6
2.7 Necessary financial literacy conditions for sustainable development in South Africa
2.7.1 Unlocking the potential
2.7.2 Transparency and accountability
2.7.3 Lifelong learning
2.7.4 South Africa and the African Renaissance
2.8 A new class of decision makers
2.8.1 Financial experts versus financially literate decision makers
2.8.2 The development of all three economies of South Africa
2.9 Summary
CHAPTER 3 A SYSTEMS VIEW OF THE FINANCIAL LITERACY INTERFACE
3.1 Introduction
3.2 A systems view of the organisation
3.3 The two systems: matter and mind
3.3.1 The decision-oriented financial information system (matter)
3.3.2 The human behavioural system (mind)
3.3.2.1 Communication and cybernetics
3.3.2.2 Behavioural studies
3.3.2.3 Cognitive styles and approaches
3.4 Financial literacy as the interface between two systems 9
3.4.1 The financial literacy concept
3.4.2 The financial literacy interface
3.5 The financial literacy learning process
3.5.1 Learning the financial language
3.5.2 Feedback as a learning tool
3.6 Intellectual financial capital
3.7 Financial literacy in a culturally diverse society
3.8 Summary
CHAPTER 4 INFORMATION: THE CREATIVE ENERGY OF THE ORGANISATION
4.1 Introduction
4.2 Information dynamics
4.2.1 The nature of financial information
4.2.2 The knowledge-driven organisation
4.2.3 Communication in an information-rich organisation
4.2.4 Financial information that makes decision making possible
4.3 The conceptual framework underlying financial information 1
4.3.1 The objectives of financial information
4.3.2 The qualitative characteristics of financial information 1
4.3.2.1 Understandability
4.3.2.2 Relevance
4.3.2.3 Reliability
4.3.2.4 Comparability
4.3.3 The elements of financial reporting
4.3.4 The recognition and measurement concepts of
financial information
4.4 The financial information value chain
4.5 The accountants’ role in facilitating decision making
4.6 Summary
CHAPTER 5 SOURCES OF FINANCIAL INFORMATION
5.1 Introduction
5.2 The crisis of meaning
5.2.1 Information inductance
5.2.2 Information asymmetry
5.3 Credible financial information providers
5.3.1 The media
5.3.2 Financial market information
5.3.3 Firm-oriented information releases
5.3.4 Accounting information through financial statements 1
5.4 The financial reporting paradigm
5.4.1 The drive behind accounting standards
5.4.2 Accounting standard-setting
5.5 The financial reporting controversy
5.5.1 Inherent constraints in providing financial information 1
5.5.2 Trustworthy financial figures
5.6 Financial reporting’s growing complexity
5.7 The effective communication of financial information
5.7.1 Decoding of financial information
5.7.2 Information overload
5.8 The financial information expectations gap
5.8.1 Forward-looking financial information
5.8.2 The predictive ability of financial information
5.9 The future of the financial information age
5.10 Summary
CHAPTER 6 THE LEARNING FOR CERTAINTY VERSUS LEARNING FOR UNCERTAINTY PARADOX AS THE BASIS FOR FINANCIAL LITERACY
6.1 Introduction
6.2 Defining key concepts in the financial literacy model
6.2.1 Financial knowledge
6.2.2 Financial intelligence
6.2.3 Financial consciousness
6.2.4 Other numeral literacy concepts
6.3 Integrating financial knowledge, financial intelligence and financial consciousness towards financial literacy
6.4 The Bloom and Beard heritage: a financial perspective
6.4.1 The cognitive domain
6.4.2 The affective domain
6.4.3 The psychomotor domain
6.5 Financial literacy according to Bloom’s six levels of thinking
6.5.1 Knowledge
6.5.2 Comprehension
6.5.3 Application
6.5.4 Analysis
6.5.5 Synthesis
6.5.6 Evaluation
6.6 Levels of learning necessary for financial literacy
6.7 Learning for uncertainty: a financial literacy approach
6.8 Summary
CHAPTER 7 THE EVOLVING FINANCIAL CONSCIOUSNESS OF DECISION MAKERS
7.1 Introduction
7.2 The value school or user-need school and other decision usefulness approaches
7.3 Behavioural research: decision making at the individual level
7.3.1 The lens model
7.3.2 Probabilistic judgement
7.3.3 Predecisional behaviour
7.3.4 The cognitive style approach
7.4 Decision-support systems
7.5 The different users of financial information
7.5.1 External users
7.5.1.1 Investors
7.5.1.2 Creditors and suppliers
7.5.1.3 Customers
7.5.1.4 Financial analysts
7.5.1.5 Employees
7.5.1.6 Regulators
7.5.1.7 Government officials and agencies
7.5.1.8 The public
7.5.2 Internal users
7.5.2.1 Managers
7.5.2.2 Board members
7.6 The manufactured consciousness of users
7.7 The user primacy principle
7.8 Summary
CHAPTER 8 A FINANCIAL LITERACY INTERFACE MODEL
8.1 Introduction
8.2 Basic financial literacy proficiencies
8.3 The financial knowledge creation process
8.4 The role of a conceptual model
8.5 Towards a financial literacy interface model
8.5.1 The financial literacy model
8.6 Outcomes of the proposed model
8.7 Summary
CHAPTER 9 THE METHODOLOGY USED TO ESTABLISH THE AUTHENTIC ESSENCE OF THE FINANCIAL LITERACY CONSTRUCT
9.1 Introduction
9.2 The research methods used
9.2.1 Literature review
9.2.2 Interviewing as orientation
9.2.3 Questionnaires
9.3 Implementing the empirical research methods
9.3.1 Conducting the interviews
9.3.2 Development of the questionnaire
9.3.3 Pretesting
9.4 Sample choice and response rate
9.5 Data preparation
9.6 Statistical presentation of the data
9.7 Restrictions encountered in conducting the survey
9.8 Summary
CHAPTER 10 PRESENTATION AND ANALYSIS OF THE RESEARCH FINDINGS
10.1 Introduction
10.2 The research findings
10.2.1 Sociodemographic information
10.2.2 Information on the financial literacy concept
10.2.3 Information on financial literacy for decision making
in an organisation
10.2.4 Information on the attributes of financial information
for decision making
10.3 Descriptive and inferential statistics
10.3.1 Factor analysis and clustering
10.3.2 Chi-square statistics
10.4 Summary
CHAPTER 11 SUMMARY, CONCLUSIONS AND RECOMMENDATIONS
11.1 Introduction
11.2 Overview of the literature and empirical study
11.2.1 Literature review
11.2.2 Survey research
11.3 The adjusted financial literacy model
11.4 Conclusions
11.4.1 General
11.4.2 Empirical study
11.5 Recommendations
11.6 Contributions to research
11.7 Suggestions for further research
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