Book 1

PreparE to Invest:
An introduction to investing

I
ACKNOWLEDGEMENTS
The Financial Services Board (FSB) acknowledges the input provided by the
organisations listed below into the development, review and preparation of the
following consumer financial education booklets as listed below:
Book 1: Prepare to Invest: An Introduction to Investing
Book 2: Grow your Money: Intermediate Investing
Book 3: Create Personal Wealth: Advanced Investing

REVIEW COMMITTEE
· Association for Savings and Investments South Africa (now ASISA)
· Financial Planning Institute (FPI)
· Allan Gray
· Capital Markets Department (FSB)
· Collective Investment Schemes Department (FSB)
· Financial Advisory and Intermediary Services (FAIS) Department (FSB)

Prepare to Invest: An Introduction to Investing, Grow your Money: Intermediate

Investing and Create Personal Wealth: Advanced Investing was developed by
The Training Edge (Pty) Ltd on behalf of the Financial Services Board (FSB)
as part of an ongoing Consumer Financial Education Project to help all South
Africans increase and improve their financial literacy levels and live financially
well lives.
The project was funded by the Financial Services Consumer Education Foundation
(FSCEF) and project managed by the FSB.
Vs.1 [13 May 2016]
 Section a
Table of Contents
In this user guide 4
Our target audience 4
Outcomes 4

Section b
SECTION A 5
Developing good financial habits 7
1. Practising good financial habits 7
1.1 Steps to good financial habits 8
1.2 Planning your personal financial strategy 9
1.3 What your financial strategy should help you do 10

Section c
1.4 Prioritise your goals 11
2. Budgeting 12
2.1 Benefits of keeping a budget 13
2.2 What should you include in your budget? 14
2.2.1 My budget 15
2.3 Budgeting tips 17
3. Saving versus investing 18

Section d
4. The importance of investment goals 19
4.1 Setting investment goals 20
4.1.1 Defining investment timeframes 21
4.2 Investment decision making process 23
5. Saving for a rainy day 24
6. Interest rates 26
6.1 Simple interest 26
Section e

6.2 Compound interest 26

6.2.1 The power of compound interest on your investments 26
6.2.2 How compound interest can work for you 28
7. The impact of inflation on investments 29

SECTION B 33
Financial advisors 34
1. Seeking advice 34
Section f

1.1 Why you should get advice 34

1
 1.2 When advice can help you 35
2. Choosing a financial service provider 36
2.1 Checking a financial advisors background 37
2.2 How your financial service provider creates your financial plan 40
2.2.1 Communicating with your financial service provider 42
3. Other forms of advice 43

SECTION C 45
Saving and investing 46
1. What types of products are available? 46
1.1 Defining bank investment products 47
1.1.1 Current (cheque) and savings accounts 48
1.1.2 Tax-free savings accounts 50
1.1.3 Call accounts 51
1.1.4 Fixed-term deposits 52
1.1.5 Notice deposits 53
1.1.6 Money market funds 54
2. Other savings mechanisms 55
2.1 Friendly societies 55
2.2 Informal savings: stokvel 55
3. Other types of investments 56
3.1 Stocks/shares 56
3.2 Exchange-traded funds (ETF) 56
3.3 Bonds 56
3.4 Collective investment schemes (CIS) 57
3.5 Participation mortgage bond scheme 57
3.6 Derivatives 57
4. Building a successful investment portfolio 58

SECTION D 59
Insurance products 60
1. Long-term insurance products 60
1.1 Endowment policy 61
1.2 Health policies 62
1.2.1 Hospital plans 62

2
 Section a
1.2.2 Medical insurance 62
1.2.2.1 medical aid versus medical insurance 62
1.3 Life cover 63
1.3.1 Whole life cover 63
1.3.2 Universal life cover 63

Section b
1.3.3 Term insurance 63
1.4 Disability cover 64
1.4.1 Capital disability cover 64
1.4.2 Income protector disability cover 64
1.5 Funeral insurance 65
2. Short-term insurance products 66
2.1 Examples of short-term insurance 67

Section c
SECTION E 69
Retirement funds 70
1. Retirement annuities 71
1.1 Retirement annuity 71
1.2 Conventional or fixed-interest annuity 71
1.3 Living annuity 71

Section d
1.4 Composite annuity 71
2. Retirement fund 72
2.1 Pension, provident and preservation fund 72

SECTION F 75
Protecting your savings and investments 76
1. Identifying investment scams 76
Section e

1.1 Other warnings signs to take note of 76

1.2 How to keep an eye on your investments 79
1.3 Your last will and testament 81
1.3.1 Documents you need to draw up your will 82
1.4 Keeping records 84
1.5 What are your rights? 86
1.5.1 What are your responsibilities? 87
2. Treating Customers Fairly 90
Section f

Bibliography 93

3
IN THIS USER GUIDE

Our target audience

This guide is aimed at you, the consumer, whose main aim is to learn how to control and
manage your income to create a surplus of funds. You:
• have an income
• already transact within the informal and / or formal and regulated financial sector
• would like to manage your income by living within your means
• aim to spend less than you earn
• would like to safeguard your money so that you can start seeing it grow

Outcomes
In this guide we will provide you with the information that you need to:
• start practising good financial habits and set yourself goals
• understand the effect of interest
• choose a trustworthy financial advisor and ask for advice
• understand how your financial advisor creates your financial plan
• understand the different types and benefits of banking investments available to you
• build your investment portfolio
• understand insurance and retirement investment products available to you
• draw up your will
• understand your rights and responsibilities as an investor
• file a complaint

4
 SECTION A

“I never invest in anything

that I don’t understand.”
Warren Buffet

5
DEVELOPING GOOD FINANCIAL HABITS
South Africans are poor savers. We are spenders not savers and find it difficult to pay our bills.

Everything that you know about money was probably learnt from your parents or older members
of your family. If they manage their money well, you probably do too.
Do you know that
· saving money can earn you interest
· if you owe money, you will pay interest

$ $
$ $ What is a consumer?
A consumer is YOU!!
A customer that buys
goods and services.
spending

What is interest?
Interest is the cost

$ $
of using somebody
else’s money. When
you borrow money
from someone, you pay
interest. When you lend
money to someone, you
earn interest.
Saving

53% of South African consumers keep a close personal watch

on their financial affairs.

Source: FSB. 2012. Financial literacy in South Africa: Results of a national baseline survey 2012

6
 Section a
Setting yourself goals to help you to save money for the things that you want is a good place
to start.

You need to know where your money is spent so that you can plan ahead.

Most of us don’t plan ahead. Planning

Section b
and setting goals can help us to reach
our goals.

This guide gives you information What do I take

on saving money and making your How much do
home every
money work for you. I need to save
month?
to achieve my
goals?

How much
What do I is my rent /

Section c
need for bond, water &
transport? lights, school
fees and car
How much loan?
do I need for
food?

Section d
1. PractiSing Good Financial Habits
Being able to save money will help you to become financially stable. It is all about discipline or
self-control.
Section e

Start to change your poor money habits into good spending and savings habits so that you can
achieve your goals – put your plan in place.

Planning for financial stability isn’t just for wealthy people; financial planning helps you see the
big picture and set long and short-term life goals, an important step in mapping out your financial
future. You need a quality personal financial plan – without having to pay a financial planner to put
one in place for you.
Section f

7
1.1 Steps to good financial habits

01 02
Start with the basics: Grow your financial knowledge:
• Complete a budget • Being financially literate helps you to:
• Understand your income
- make informed choices
and expenses
- increase your confidence
• Manage your cash flow
- achieve your financial goals
• Reduce debt
• Start to save
• Define your goals

03
04 Seek advice:
• Consider asking for advice
Understand your investment options:
from an investment advisor or
• Understand what you are investing in, financial planner if you need help
what investment options exist and if
these options are suitable for you

05 06
Understand investment risk: Invest regularly:
• Understand the risks involved • Make your money work for you.
when investing Invest regularly and over a long
period of time to take advantage
of compound interest (i.e. interest
07 added to your investment which
will then also earn interest –
Protect your financial stability:
‘interest on interest’)
• If you earn a steady income, protect
it with the appropriate insurance
cover (e.g. income protection, total
and permanent disablement and
trauma cover)
09
Develop a strategy:
08 • Put a ‘road map’ in place to
Plan your estate: help you achieve your goals

• Ensure that you have a will in place • Take into account your current
that reflects your last wishes upon situation, goals and objectives
your death and ensures that your • Update it as your
beneficiaries are taken care of circumstances change

8
 Section a
1.2 Planning your personal financial strategy
Let’s start with the basics.

We all have to decide how to spend and save our money; even the wealthiest of people. Having
a form of income is important. Your income could come through various sources such as:

Section b
family
wages interest rent profit
members

Personal financial planning helps you to manage your

financial life by looking at the best ways to save, spend, What is an income?
and invest to reach your goals. Your plan must take into
Money received, especially

Section c
consideration your
on a regular basis from
• income work, through selling
• expenses something or as profit from
• investments and financial investments

• debt

so that you can meet your short- and long-term goals.

Personal financial
planning:

Section d
Personal financial planning
is the process of determining
your current as well as your
future financial needs and
goals

Section e
Section f

9
1.3 What your financial strategy should
help you do

Form a clear picture of your current finances

Analyse your
• Look at your current situation and future plans/goals
current financial
• Look at your current income and expenses and benefits you
situation
receive at work

• Look at the impact on your family, should something

unexpected happen:
- know what you can’t afford to lose and the plans you
Protect against already have in place
the unexpected • Protect your family from the financial impact of unexpected
events (e.g. death, disability and home and car insurance)
• Your financial advisor can guide you to the right cover for you

• Decide what is important. Saving for:

- retirement
Grow your - a home or car
financial wealth - yours or your children’s education
• How much time do you have to achieve these goals?
• Do your current investments support your financial goals?

Your investment advisor will help you to:

Consider the • understand the implications of tax on your investments
tax implications - which products offer tax advantages and benefits
• keep track of your dividends and deductions etc.

Plan for Retirement planning should be a priority. Consider:

retirement • how much money you will need for retirement

Where will your money end up when you are gone?

Leave a legacy
• make sure that it is clear who you want to benefit on your death

10
 Section a
1.4 Prioritise your goals
Have you given your financial goals any thought? Think about your goals, your values, the kind of
lifestyle that you want and what you would like to achieve. If you are in a relationship, have you
discussed your goals with your spouse or partner? Complete the following worksheet. Ask your
spouse or partner to complete it in a different colour pen and then compare the two.

Section b
PRIORITISE YOUR GOALS

Rate each financial goal based on how important it is to you

(1 = not at all important with 5 being very important)

Not Very
Important Important

Paying off debt e.g. home loan 1 2 3 4 5

Section c
Control spending 1 2 3 4 5

Saving for education 1 2 3 4 5

Saving for retirement 1 2 3 4 5

Understanding my investments 1 2 3 4 5

Knowing I have the right investments for 1 2 3 4 5

all my life stages

Section d
Active involvement in managing my 1 2 3 4 5
investments

Looking for ways to make the most of tax 1 2 3 4 5

advantages and benefits offered

Being able to retire at the age of _____ 1 2 3 4 5

Providing a comfortable lifestyle for my 1 2 3 4 5

family in the event of my death
Section e

Creating an estate for my heirs 1 2 3 4 5

List any other financial goals or objectives:

Section f

11
 Setting goals helps you to decide what you want to achieve in the short term (e.g.
paying off debt or saving for a car) and the long term (e.g. paying off a bond or
saving for a comfortable retirement) and encourages you to commit to a course of
action.

Because life never goes as we have planned, it is necessary to be flexible and review
your goals often.

“A budget is telling your money where to go

instead of asking where it went.”

Dave Ramsey

2. Budgeting
Creating a realistic budget is the first step to creating wealth.

As soon as you start spending your own money, you should start
tracking your spending so that you can create and follow a personal Budget:
budget or a personal financial plan. A budget helps you to highlight A plan that details
unnecessary spending and allows you to plan your finances better. If how you are going to
you don’t plan your spending and saving you will always be affected by spend your income
unexpected emergencies. Increases in the cost of food and petrol also
have a negative impact on your money.

You are probably spending the best part of 40 hours a week at work and get home too tired to
enjoy your free time. If you are going to spend so much time earning an income, you need to
make sure that your money is working for you and going to the things that are important to you.
Not being aware of your spending and saving habits will leave you in a predicament when you
have unforeseen expenses and emergencies.

12
 Section a
2.1 Benefits of keeping a budget
• Make long- and short-term plans for your finances
• Get the most from your money
• Plan for major financial changes
• Achieve peace of mind through reaching your goals

Section b
Keep track of your spending by carrying a notebook and pen. Write down your daily spending and
monthly expenses. List everything that you spend, no matter how small – from the newspaper or
coffee on the way to work or your spending spree at your local shopping mall.

If you have access to a personal computer, transfer your notes onto a spreadsheet, such as Excel,
on a daily or weekly basis. Most banks also have free online budgeting software that you can use.
Once you have collected your information for a month, you will have a clearer picture of unnecessary
spending. Doing this for a year will give you a better picture of your financial situation.

Are you ready to create your budget?

Section c
Section d
Section e
Section f

13
2.2 What should you include in your budget?

Housing Food Utilities

(bond / rent) (groceries / eating out) (irregular expenses)

Fuel / Taxi Fare Insurance Clothing

Personal Savings Entertainment Other

Personal savings: Utilities: Other:

Personal savings are Utilities, such as electricity, Other, includes expenses

things like saving for water, pay-as-you-go that are not expected on
retirement, education, cellphone, are called irregular a monthly basis such as
an emergency fund and expenses because they vary gifts, vehicle repairs, hair
long-term savings. from one month to another. braids or extensions etc.

Let’s have a look at what your budget should look like.

The Financial Services Board provides a free budget template that you can download to use. Visit
www.mylifemymoney.co.za

14
 Section a
2.2.1 My budget

January February
Budgeted Actual Budgeted Actual
Amount Amount Amount Amount
INCOME (Your earnings)

Section b
Salary
Child Support/Grant
Other Income…
Sub-total Income
EXPENSES (Everything you have to pay)
Fixed Costs (Costs that do not change from
month to month)
Rent / House Bond
Vehicle Finance

Section c
Short-term Insurance (e.g. vehicle cover)
Medical Aid / Hospital Plan
School / Crèche (day care) Fees
Retail Store Accounts (e.g. furniture account)
Cellphone Contract
Internet Contract
Magazine / Newspaper Subscriptions
DStv
Personal Savings / Emergency Fund /

Section d
Investments
Gym
Money for Family
Sub-total Fixed Costs
Changing Costs (Costs that change from
month to month)
Transport e.g. Petrol and Taxi Fare
Utilities (water and lights)
Groceries / Eating out / Take-away Food
Section e

Clothing / Clothing Accounts

Entertainment
Medication
Cellphone Airtime (pay as you go)
Sub-total Changing Costs
Section f

15
 Other Expenses
Contribution to Events (e.g. gifts)
Vehicle Repairs
Haircut / Salon / Beauty Treatment
Books / Newspapers / Magazines
TV Licence Fee (annual or monthly)
Vehicle Licence Renewal (annual)
Cellphone Airtime (pay as you go)
Sub Total Other Expenses
Total INCOME
Less Total EXPENSES (fixed + changing
costs + other expenses)
Surplus or Deficit

Surplus: Deficit:

Money you have left over after you have When you spend more than you earn, you
paid all your accounts and bills. will have a deficit (negative balance).

16
 Section a
2.3 Budgeting Tips
Avoid making impulsive purchases. If you didn’t go to the store or
Control your online to make the purchase, wait 24 hours before buying the item. Do
spending you need it, or is it a nice to have? Only when you are financially secure
can you start to think about splashing out on nice-to-have purchases.

Section b
It’s easy to remember or see how much you spent on rent or your bond
payment, but for other expenses, you’ll want to save your receipts.
Keep track of Relying on your debit or credit card statement isn’t always such a good
every expense idea as the transaction descriptions are not always clear. Remember
to include debit card transaction fees and interest charged on credit
card purchases in your expenses.

Update your Track your spending daily if you can or at least weekly to keep up to

Section c
budget date and on track.

List your expenses by what they are rather than where you purchased
Use accurate them. This allows you to see how much you spent in particular
descriptions categories. For example a purchase from a big retailer may include
groceries and clothing.

Complete your budgeted amount column at the start of every month.

Section d
This helps you to start thinking long term, but not too long term that
Budget
the thought of completing your budget becomes scary. If you have had
monthly high expenses in the past month, you can see how to make up for it in
the new month.

If you are on a tighter budget, set aside additional savings ahead of

time. Don’t get into debt because you didn’t remember that it was your
Plan for other dad’s birthday or that you had 6 months warning to buy a wedding gift
expenses for your best friend.
If you are a commission earner or self-employed, put some money away
Section e

during the ‘good’ months to help you in the ‘not-so-good’ months.

Pay your bills Make sure you pay your bills on time in order to avoid unnecessary
on time late payment penalties and / or interest charges.
Section f

17
3. Saving versus investing
Let’s have a closer look at the difference between saving and investing:

Saving Investing

Savings are low risk funds that must be Investing is for the purpose of building
available when you need them – you would wealth, will not be needed for many years
save money for a specific purpose within a and involves greater risk.
short timeframe.

Short term: Ready to go Long term: Achieve major goals

Saving is for shorter-term goals like going Investing can help you reach bigger long
on holiday, having money for an emergency term goals like saving for your own home
or saving for education. or car.

Ready access to cash Harder to access cash

Saving in a typical savings account (e.g. When you invest your money, it’s usually not
cheque account, savings account, money as easy to get your hands on it quickly as
market account) gives you access to ready compared to a savings account.
cash when you need it.

Minimal risk Can involve risk

If your money is in a savings account, there There is always a possibility that you may
is minimal or no risk that you will lose the lose some or all of the money you invest.
money you have invested. The greater the risk of an investment,
the higher potential return or loss of your
money. Look for safe investment products if
you want to avoid risk

Earn interest Potential for profit

You can earn interest by putting money in Investments have the potential for higher
a savings account, but savings accounts return than a regular savings account. Your
generally earn a lower return than investments may go up in value over time.
investments. Selling shares, for example, at a higher price
than what you bought them for will make you
a profit.

18
 Section a
4. The importance of
investment goals
Setting and achieving meaningful investment goals will lead you to financial freedom.

Section b
Direction
Financial goals provide direction and meaning for your
investing efforts. They make it easier for you to make
sacrifices or stick to a budget because you know the
outcome you’re striving for. They help you keep focused
in the long term.

Section c
Motivation
Financial goals provide purpose and energy and help
you stay disciplined in your investment process. Your
goals should be important to you so that they provide the
inspiration for you to keep on working towards them.

Accomplishment

Section d
Reaching your financial goals provides you
with a sense of accomplishment and you
should celebrate significant milestones.
Achieving your savings goals should lead you
to your investment goals.

Accountability
Writing down your goals and being accountable
(whether it is just to yourself or to some significant
Section e

other person) for your progress keeps you

honest about how you are progressing. Regularly
reviewing your goals helps keep you on track.
Section f

19
 4.1 Setting Investment Goals
Goal setting does not need to be hard work. It is a fairly simple process and can be
done in whatever way works the best for you.

Here are a few steps to guide you:

dreams
are

- Diana Scharf Hunt

with

GOAL SETTING

Write down your goals. Whether you use a piece of paper and a
Step pen, open up a document on your computer or use your smart

01 phone to record your thoughts, it is vital to make sure you write

your goals down so that you can review them at a later time.

Æ Specific
Step Make each goal clear and specific

02 Æ Measurable
Frame each goal so that you will know when you have achieved it
Frame your
goals using the Æ Achievable
SMART format You must set goals that you are able to reach

Æ Realistic
A goal must be relevant and realistic

Æ Time-based
Attach a timeframe to your goals so that you can track your
progress and achievement

20
 Section a
Step
Write an action list of the things you need to do to reach your goals.
03

Section b
Regularly review your goals. The more you focus on your goals, the
Step more your subconscious mind works on ways to achieve them.

04 Reviewing your goals regularly can also give you a sense of progress
and, since you may have set smaller goals to reach the bigger ones,
this review process is very important in keeping you motivated for the
long term.

Section c
The FSB provides a calculator to help you calculate how much money you need to save each
month to achieve a goal. If you are able to access the internet go to the following link for the
calculator: https://www.mylifemymoney.co.za/Consumer/Tools/Pages/Saving-for-a-Goal.aspx

4.1.1 Defining investment timeframes

Section d
Time frames play a very important part when you are setting financial or investing goals. For
example, the closer you get to retirement the less willing you will be to take risks with your
money.

Your goals could be short, medium or long term.

Section e
Section f

21
 Short-term GOALS

Short-term goals are something you can reach quite quickly e.g. in a year or six months.
Examples of short-term goals might be:
• travel
• paying off debt (e.g. furniture account)
• building an emergency fund (It is a good idea for everyone to have
money put aside to cover expenses in the case of an emergency.
A good rule is to have enough for at least 3 months of expenses
when you are young and single and 6 months when you have
greater financial responsibilities).

Setting and reaching short-term goals is a good stepping stone to start on longer-term goals.

Medium-term GOALS

Medium-term goals tend to be a little bigger than your short term

goals and are generally goals that you want to achieve in around 2 to
3 years. Examples of these types of goals could be:
• saving for a car
• saving for a deposit on a home
• paying off a larger study loan

Long-term GOALS

Longer term goals are generally focused on accumulating wealth

for retirement or planning for actual retirement. These goals date
longer than 5 years.

Only 44% of South Africans are confident that their retirement income will
ensure the standard of living they hope for.

Source: FSB. 2012. Financial literacy in South Africa: Results of a national baseline survey 2012

22
 Section a
4.2 INVESTMENT DECISION MAKING PROCESS
Step 1 : Purpose

Money, savings and investments are tools that can be used to reach your goals.

Section b
Purpose
To make sure that you choose the right tool to achieve your goal you must first
decide on your goal. For example buying a car, or a home or achieving a goal
such as funding yours or your children’s education or your retirement.

Step 2: Time
Surrender
How long do you have to achieve your goal? Is
Time The amount which the policy
this goal a short-, medium- or long-term goal?
owner is entitled to receive
Deciding on how long you have to achieve if, at any point during the
your goal will guide your choice of period of effectiveness of

Section c
investment tool. You don’t want to be locked into a long- the policy, the policy owner
term investment if you need the money now (long-term chooses to cancel the
investments may have surrender charges, penalty fees or insurance policy
tax consequences if you cash them out early).

Step 3: Investment risk

Policy Owner
Investing has a risk/reward relationship.
Risk If you own an insurance
How much risk are you prepared to take in
contract or policy, you are a

Section d
order to get a return on your investment?
policyholder, also known as
The higher the risk, the higher the reward.
the policy owner
When you think about risk it is important to think of it in
rands and not percentages. Saying that your R10 000
investment could lose R1 000 sounds quite different and
more ‘painful’ than saying that you could lose 10%. Risk/Reward Relationship
The more risk an investor
Step 4: Tools takes, the bigger the
expected reward to make up
All financial products have benefits, costs
Tools for the possible risk.
Section e

and rules of use.

Compare benefits, costs and rules against Higher risk = higher reward
what you need e.g. If what you need is a Lower risk = lower reward
low-risk, income-producing fund, a high-return investment
might not be your first choice.

Monitor Step 5: Monitor and adjust

and
adjust Your needs change over time. Make changes to your investments when needed.
Section f

An investment advisor can help you to make investment decisions that will be the right ones for you.
23
5. Saving for a rainy day
Have you ever heard the expression, ‘save for a raining day’?

Having an emergency fund is not a nice-to-have – it is an absolute

MUST-have. It is recommended that you keep a cash reserve that is
big enough to cover three to six months’ worth of household expenses.

While an emergency fund is a great idea, it is quite difficult to achieve.

Why do you need so much? In our uncertain economy unemployment
can happen unexpectedly likewise, emergencies like sudden illness or
disability, car or house repairs can be expensive.

Save for emergencies in the same way you would any other financial goal. Put together a plan
and then put it into action.
• Complete your budget.
• Once you know your total expenses for each month, multiply that number by three. Reaching
that number will be your first goal. To achieve your three-month target, you need to start
saving money. Treat this saving like one of your expenses under fixed costs on your budget.
• Decide how long you are going to give yourself to save your emergency fund and divide your
total saving over the number of months required.

• You need R5 000 a month to cover your total expenses

• Multiply this by 3 or 6 months (= R15 000 or R30 000)
• Let’s say that you have given yourself 2 years to save towards your fund
EXAMPLE • Divide the total amount that you need to save by 24 months (= R625 or
R1 250) to see how much you will need to save per month to achieve your
goal.

In order to achieve your goal as quickly as possible you may need to make some sacrifices.
• Do you really need that second cell phone?
• Do you need to eat out twice a month, when once a month will do?
• Do you need to spend your bonus on a holiday or would it be better invested in your emergency
fund?

24
 Section a
In a financial literacy study conducted by the Financial Services Board in 2012
it was reported that fewer than ⅓ of South Africans set aside money for an
emergency. This means that over ⅔ of South African consumers won’t be able
to cover their expenses for 3 months in case of an emergency.

Section b
4%

29%

Section c
Don’t know

67%
No, I don’t have an
emergency fund

Yes, I have an
emergency fund

Section d
Percentage of South Africans that have an emergency fund
to cover three months of expenses.

Source: FSB. 2012. Financial literacy in South Africa: Results of a national baseline survey 2012
Section e
Section f

25
6. Interest Rates
It is important that you know the interest you will earn on the money you save. There are two types
of interest:

6.1 Simple interest Interest rate

Simple interest allows you to earn interest on only the initial Interest is money we
amount invested. This is how it works: earn when we deposit
money at the bank, or
• Year 1: R1000 x 10% = R1100
the price that we pay for
• Year 2: (R1000 x 10%) = R1100 + R100 (from year 1) = R1200 credit.

• Year 3: (R1000 x 10%) = R1100 + R100 (from year 1) The interest rate
+ R100 (from year 2) = R1300 is expressed as a
percentage and is the
percentage interest that
we earn or pay per year.
6.2 Compound interest
Interest can be
You have probably heard about compound interest and are calculated at the
wondering how that would affect your investments. beginning period of a
loan or on the balance
Compound interest is a powerful income-generating tool.
of your debt after every
The value of compound interest is all about when you start
monthly repayment.
saving and for how long you keep saving.

6.2.1 The power of compound

interest on your investments Compound interest
The basic principle of compound interest is earning interest
Compound interest
on interest. Once you have put your savings aside, however
is the process of
small they may seem, you do not have to do anything but sit
generating interest on
back and watch your money grow. Savings accounts or unit
interest.
trusts that generate compound interest are best over the
long term if you want to see significant growth in your money.

26
 Section a
Let’s say for example that you deposit
R1 000 into a savings account with an
interest rate of 10% per year. After
one year, you will earn R100 on your
EXAMPLE savings (10% of 1 000 is 100).

Section b
In your 2nd year, if you haven’t deposited
or withdrawn any funds from your account, you will earn
10% interest on R1 100. So you earn interest on your initial
R1 000 and on the extra R100 you got at the end of the first
year. This means your money will increase at a steady and
usually rapid rate over time while you sit back and watch
it grow.

Unfortunately, compound interest also works on your debt. If you don’t take care of your debt, it will
grow bigger and bigger with interest being calculated on the interest. Interest on debt is also often

Section c
higher than the interest paid on savings, so debt grows much faster than your savings.

The basic principle of compound interest is earning

additional interest on interest.

Once you earn your first interest payment, it is

Section d
added to the principle

R1,07
98c
90c

R10 +9% R10,90 +9% R11,88 +9% R12,95 +9%

Section e

Year 1 Year 2 Year 3 Year 4

Section f

27
Let’s have a look at an example of how compound interest will benefit you the longer you leave
your investment.

6.2.2 How compound interest can work for you

R479,453
Tim puts away R250 monthly for only 6
years, at 9% interest. He then leaves it in an At age 65
account at 9% interest, to grow for the next his money
35 years. is worth
R479,453

Unit is based on a rate of 9%

Age 24 30 65
Tim saved for only 6 years but This is where the magic of
6 years compound interest happens.
still earned more. If Tim had
kept putting this away monthly
he’d retire with a staggering
R1,152,864
The more time you
allow your savings to
compound the better! R425,528

At age 65
his money
Jonh puts away R250 monthly is worth
for 30 years, at 9% interest. R425,528

Unit is based on a rate of 9%

Age 35 65
John saved for 30 years at 9%
interest, and earned less, but he
started a decade later than Tim.

Source: FIN24. 2012. http://www.fin24.com/Money/Money-Clinic/Investments/The-power-of-compound-interest-20121012

Date of access: 24 Aug 2015

If you saved R250 monthly for 6 years between the ages of 24 and 30, and then left
those savings in your account, by the age of 65 you would be worth R479 453 (This is
based on an interest rate of 9%).

28
 Section a
7. The impact of inflation on
investments
We can look at inflation in two ways:

1. Looking back in time to see how cheap goods were in the past:

Section b
1972 47 cents
Inflation
2015 R57.00 Inflation is the
general increase in
price levels

Section c
1995 R295.00

2005 R565.00

2015 R1 000.00

Section d
2. Or you can look forward to see how far your money will stretch in the future:

R10,000.00

R8,000.00
Inflation
R6,000.00
Section e

R4,000.00

R2,000.00

R0.00

5 years 10 years 15 years 20 years 25 years 30 years

If your retirement income does not at least grow in line with inflation, you will experience a drop
Section f

in your standard of living, or you will run out of money.

29
 For example: a fixed monthly retirement income of R10 000 per month today
will decline in real terms to about R1 700 per month after 30 years at a 6%
inflation rate and you will be even worse off if the inflation rate gets higher.

EXAMPLE Inflation in South Africa is currently (2015) running at 6.1% year-on-year. That
means that when you invest your money you must make sure that the interest
you earn is more than inflation for it to not eat into the value of the money you
are saving.

Most South African consumers don’t use formal savings mechanisms.

South Africans that are able to save money mostly do it informally, such
as saving money at home or in a wallet (30%), in a stokvel (11%) or giving
money to a family member to save (9%).

Source: FSB. 2012. Financial literacy in South Africa: Results of a national baseline survey 2012

30
Section a Section b Section c Section d Section e Section f

31
Notes
 Notes

32
 SECTION B

“A penny saved, is a
penny earned.”
Benjamin Franklin

33
FINANCIAL ADVISORS
Financial advisors are your link to a financial services provider (FSP) and the stock exchange
(JSE). If they specialise in the products offered by one FSP they earn commission on the sales
they make. If they sell products for various FSPs, they may charge you a fee for their services.

Investment advisors can guide you to good financial decision making to help you achieve your goals.

1. Seeking advice
It is important to manage your money well. You need to have
an understanding of financial products so that you can reach Financial literacy
your savings and investment goals.
A combination of the
Asking for financial advice can make a big difference. awareness, knowledge,
skills, attitude and
behaviour necessary to
make sound financial
decisions and achieve
1.1 WHY YOU SHOULD GET ADVICE individual financial
well-being
The right kind of financial advice can help you
• set your financial goals to make sure they are realistic and
achievable
• stay on track
• make your money work for you
• avoid expensive mistakes
• protect the things that you own

Financial advice can show you that your goals are achievable. If you are not on track to achieve
your goals, it can help you to take the right steps to get back on track or to update your goals
making them more realistic and achievable.

34
 Section a
1.2 When advice can help you
There will be times in your life when asking for financial advice might help you. For example:
• If you’ve got your first job or a promotion
• If you’re considering buying a car or your first home

Section b
• If you’re thinking about getting married
• If you’re thinking about starting a family
• If you’re thinking about your children’s education
• If you’ve inherited or won some money
• If you’ve been retrenched
• If you’re opening your own business

Section c
• If you’re approaching retirement

A financial advisor can help you with once-off advice like making contributions to a retirement
fund or more complicated advice such as a personal financial plan.

Section d
Section e
Section f

35
2. Choosing a financial service
provider
Choosing an investment Professional

01 02 03

Don’t invest with Are they authorised Do they represent a

just anybody with the FSB? reputable company?

04 05 06

Check their experience Can you communicate Do they understand

and qualifications with them? your needs?

Any industry has good and bad people. Poor financial advice can be harmful to your financial
security. Take the time to find someone that you can trust.

Financial advisors shouldn’t just sell you products. They should want to help and guide you to put
a plan in place to reach your financial goals. If all you want to do is invest R500 a month for the
next five years you could probably do this yourself after doing some reading and research.

36
 Section a
Of those South Africans with low living standards, 1% rely on independent
brokers compared with 27% of those with high living standards. The nation’s
poor are more reliant on family, friends and informed community members.

Section b
Source: FSB. 2012. Financial literacy in South Africa: Results of a national baseline survey 2012

2.1 CHECKING A FINANCIAL ADVISORS BACKGROUND

Section c
Look for a financial advisor through word-of-mouth. Speak to friends, family and colleagues, but
be careful of get-rich-quick schemes. If it sounds too good to be true, it probably is.

The Financial Services Board also has a list of all the financial advisors that are accredited with
them. This would be a good list to check to see if your advisor is registered as required by law. Go
to www.fsb.co.za to view the list. You can also go to the Financial Planning Institute website on
www.fpi.co.za to select a financial advisor.

Section d
For good financial advice South Africans place their trust in banks (67%),
family/friends (71%) and churches (65%).
Moderate levels of trust are invested in independent brokers and advisors,
insurance companies and TV/radio adverts.
Lower confidence is placed in employers/work colleagues, informal
associations or moneylenders.

Source: FSB. 2012. Financial literacy in South Africa: Results of a national baseline survey 2012
Section e
Section f

37
Here is a list of questions that you could ask before you sign up with an advisor:

Are you qualified and authorised?

01 Check if they are authorised with the Financial Services Board; check what they are
allowed to give advice on – not everyone can give advice on every financial product.

Do you have references?

02 A referral from a friend or family member is often a good way to choose a good
financial advisor – they must want to help you to achieve your financial goals.

Do you follow the six-step process?

03 Most financial planning follows an internationally recognised six-step process to

identify your current financial knowledge and needs. The gap between your current
situation and your goals is what will create your financial plan.

How often will I meet with you?

04 Your personal circumstances change. You should meet with your financial advisor
at least once a year to review your plan.

38
 Section a
Do you have someone who can step into your shoes?

05 If something happens to your advisor, is there someone else who can take over the
relationship?

Section b
Which companies do you deal with?

06 Your provider should be connected to well-known service and product providers. Do

they receive training to keep them up to date with industry changes and do they have
access to other financial planning experts (e.g. estate duty, taxation and trusts)?

Section c
Why is this product right for me?
07 The product must meet your needs, so make sure you understand the product
benefits, terms and any restrictions on claims or withdrawals.

Section d
What do you charge and what will you provide for this fee?

08 It is important to understand how your advisor earns an income. Find out how this
will affect and benefit you. Make sure that you are going to get value for money.

Section e
Section f

39
2.2 How your financial service provider
creates your financial plan

Apart from your finances and goals, a good financial service provider would want to know all
about you.

Your financial service provider should follow the six step process to help you create your financial
plan to achieve your goals.

The six step process

01
Step 1

Your financial advisor ought to

• clearly explain the services to be provided to you
• define their and your responsibilities
• explain how they will be paid and by whom
• help you decide how long the professional relationship should last and how decisions will be
made regarding your investments.

02
Step 2

Your financial advisor should ask for information about your financial
situation:
• What are your goals and needs?
• In order to gain higher reward are you willing to take higher risks?
• Collect all the necessary documents and information before giving you any advice.

40
 Section a
Step 3
03
Your financial advisor will look at your current situation and suggest what
you need to do to meet your goals. This could include looking at
• what you own

Section b
• how much money you owe
• how you spend your money
• the insurance and investments you already have and
• ways to help you save on tax benefits offered, insurance and investment fees.

Step 4

Section c
04
Your financial planner should make sure that you understand what they are
recommending to you in order to achieve your goals. Ask them to revise
their plan until you are happy that you are making well-informed decisions.

Step 5
05

Section d
How will your plan be carried out? Do you need your advisor’s support and
guidance or can you do it yourself?

Step 6
06
If you will be using your advisor on an on-going basis, meet with them at
least once a year. This will allow you to make changes to your investments
as your needs change.
Section e
Section f

41
2.2.1 Communicating with your Financial Service Provider
Regularly reviewing your financial plan at least once a year is vital, unless there is a life-changing
event that requires an immediate review:

65% of South African consumers reported no problem in

getting good financial advice.

Source: FSB. 2012. Financial literacy in South Africa: Results of a national baseline survey 2012

Examples of Life-changing events

New home
Retrenchment Inheritance A promotion
purchase

Sudden
New car New job
illness

Birth of a
A divorce A marriage Death
child

42
 Section a
3. Other forms of advice
Online *Advice

There is a lot of information online that can help you with questions about your finances.

Section b
*ADVICE & INFORMATION FROM THE FSB AND OTHER REGULATORS

In South Africa, the Financial Services Board and other regulators participate in
work-based Employee Assistance Programmes. These encourage employees to save
for rainy days and retirement and include topics like planning, budgeting and saving,
rights and responsibilities and redress. Read as many brochures and informational
articles as you can.

Section c
*Advice from your bank

Bank staff can also be a good source of free factual information about ways to save such
as savings accounts and term deposits. This might be all the information you need if
your main financial goal is saving for a home or building an emergency savings fund.
Remember to shop around and compare products.

Section d
*Advice from your employee retirement fund

Your employee retirement fund can provide factual information, including

• investment options within your current fund
• saving for retirement
• how to make extra contributions to your current fund
• consolidating multiple funds
• insurance options within your current fund
Section e

Seminars and workshops

Keep a look out for free seminars and workshops being offered by financial advisors.
These usually offer you general advice which will not be specific to your own situation.

If you want advice that takes your personal situation into account, you need personal
financial advice which will mean talking to a licensed and registered financial
service provider.
Section f

*Only authorised Financial Services Providers can give advice.

43
 Notes

44
 SECTION C

“If you aren’t thinking about owning

a stock for 10 years, don’t even think
about owning it for 10 minutes.”
Warren Buffet

45
 SAVING AND INVESTING
There are different types of investments in South Africa and we have a world class financial
services industry with lots of investment options for every type of investor. Our financial
services industry is regulated by the Financial Services Board (FSB) which oversees our
investment products and how they are marketed.

1. What types of products are

available?
Investment options range from:
• secure, low risk bank accounts
• unit trusts (including money market, bonds, equities)
• on-line trading accounts (are listed on the Johannesburg Stock Exchange)
• off-shore investments (which are regulated and are subject to exchange control restrictions)

In this section we are going to look at entry level investments that are available through your
local bank branch – the staff at your bank branch will be able to assist you to open any of
these accounts and investments.

The more advanced investments, for example bonds, shares, exchange traded funds (ETFs)
and derivatives will be discussed in more detail in Books 2 and 3.

46
 Section a
Medium risk High risk investments
Low risk investments
investments offer are not guaranteed
are safe guaranteed
higher gains than with investments but offer
investments

Section b
low risk investments higher returns

55% of South African consumers claimed to research products thoroughly

when making a financial decision, compared with 25% who did not.

Source: FSB. 2012. Financial literacy in South Africa: Results of a national baseline survey 2012

Section c
1.1 DEFINING BANK INVESTMENT PRODUCTS
All around the world banks offer basic banking services which include products such as:

• debit cards
• money transfers

Section d
• access to ATMs
• branch and internet banking
• basic bank accounts e.g. cheque accounts
• investment products e.g. fixed deposits, money market and savings accounts
Section e

67% of the South African population hold at least one banking product;
29% of all South African consumers hold at least one credit and loan
product.

More than 58% of consumers hold no credit or loan products.

Source: FSB. 2012. Financial literacy in South Africa: Results of a national baseline survey 2012
Section f

47
1.1.1 Current (cheque) and savings accounts

Most people have some form of bank current or savings account – you probably do too. All banks
have variations of similar products and generally refer to them by their own branded name. These
accounts are referred to as transactional accounts.

The difference between a cheque and a savings account

Cheque account Savings account

Designed for transacting Designed for saving

Higher interest rate than that of a cheque

Low interest rate on positive balance
account

Usually requires a minimum balance to be Anyone can open a savings account,

maintained or a minimum income regardless of income

Most cheque accounts charge a monthly Using your savings account as your daily
management fee and often include free transactional account could become
services such as a certain number of free expensive as a small fee is deducted per
cash withdrawals a month, swiping for transaction that you make
purchases, subscriptions to online and
cell phone banking, debit orders, SMS
notifications, electronic transfers and
payments

Optional features that come with a cheque

account:
- cheque book
- overdraft facility

48
 Section a
Current and savings accounts
• are simple and easy to understand
• are quick and easy to open at your local bank

Section b
• are usually used for day-to-day purchases and withdrawals
• allow traditional branch banking to advanced electronic
services (Automatic Teller Machine (ATM) and online) to
making deposits, withdrawals and payments

How you will benefit • generally have tiered interest rates on a positive balance (the
higher your balance the higher the interest rate)
• charges vary from one bank to another but are usually low
and may include fees like administration fees, deposit and
withdrawal fees

Section c
All banks issue debit cards which allow you to use ATMs
and point-of-sale machines at most retailers provided that
you have enough money in your bank account, so you won’t
accumulate debt

The staff at your local bank branch will be able to open an

Who can help you
account for you. They can advise you of the transactional
with this?
products available

Some banks do require a minimum deposit when opening a

Investment amount transactional account. You may also be required to maintain a

Section d
minimum balance in your account

The risk factor These are very low risk investment accounts

Interest earned on credit balances must be reported to the South

African Revenue Service (SARS) when submitting your annual
tax return. SARS declares a tax rebate periodically on interest
What are the tax
income. In 2015, the tax rebate on SA resources is as follows:
implications?
• R23 800, if you are younger than 65 and
• R34 500, if you are older than 65
Section e
Section f

49
1.1.2 Tax-free savings accounts

Tax-free savings accounts were approved by the National Treasury on 1st March 2015 to encourage
South Africans to save more. These accounts range from savings accounts and fixed deposits to
unit trusts and endowment policies.

• No tax is paid on your savings or investment. That means

that no tax is payable on any interest earned, dividends
received; neither will capital gains tax apply
How you will benefit
• You have immediate access to your capital as well as the
income
• Long-term saving will get you the benefits of tax-free growth

• Your bank
Who can help you • Life insurance and investment companies
with this? • Your financial planner can help you to make sure that you
select the right product for your financial needs

You are now able to contribute a maximum of R30 000 per

tax year, and a maximum of R500 000 during your lifetime
completely tax free. These limits are governed by legislation
and may change.
You are able to withdraw your funds from your account but
Investment amount
note that these funds cannot be replaced. Any direct transfers
between financial institutions or individuals (or estates) to
another is not allowed until further notice. Funds withdrawn
from a Tax-Free Savings Account and transferred into another
Tax-Free Savings Account will be deemed as a contribution

This is a very safe investment. However, should you exceed

the investment amount limits you will be penalised 40% on
The risk factor contributions above the limits by SARS. It is your responsibility
to monitor and ensure that you do not contribute more than the
prescribed limits

You will not be taxed on your investment or on the interest or

What are the tax
dividends that you earn from your investment subject to the
implications?
investment minimum and maximum

Investment and savings products that South Africans are most aware of are
pension funds (72%) and Stokvels (68%).

Source: FSB. 2012. Financial literacy in South Africa: Results of a national baseline survey 2012

50
 Section a
1.1.3 Call accounts

A call account offers the advantages of a savings and a current account and is good for funds that
you may need in the future. Individuals as well as businesses can open a call account.

Section b
• Immediate access to your savings
• Unlimited withdrawals and deposits
• The higher your balance, the higher your interest rate;
How you will benefit interest is calculated on your daily balance and re-invested
monthly (you gain from compound interest)
• Most banks will only charge cash deposit fees on these
accounts

The staff at your local bank branch will be able to open a call
Who can help you
account for you and advise you of the product features and

Section c
with this?
benefits and the costs involved

Investment amount Most call accounts have a minimum deposit amount

The risk factor These are low risk investment accounts

What are the tax Interest earned must be reported to SARS when submitting your
implications? annual tax return

Section d
Section e
Section f

51
1.1.4 Fixed-term deposits

A fixed-term deposit is an investment account which allows you to invest a lump sum at a
guaranteed / fixed interest rate for a specified timeframe.

• A specified investment timeframe of usually 3 months

to 5 years stops you from withdrawing funds during the
investment period; a forced savings account
• The interest rate is higher than on a transactional account
How you will benefit
but lower than other investment options (e.g. property,
shares, bonds etc.)
• You will know exactly what you will get back at the end of the
term

The staff at your local bank branch will be able to open a fixed-
Who can help you term deposit account for you and advise you of the product
with this? features and benefit, the costs involved and the amount you will
get out at maturity

• You would have to deposit a minimum amount

• You cannot add to the investment
Investment amount
• Interest is usually paid out monthly, quarterly, annually or at
the end of the investment period (on maturity)

• These are low risk, conservative investment accounts as your

capital is secured during the term of the investment
• These accounts offer poor protection against inflation (e.g.
if your fixed deposit interest rate is 3.5%, and the current
The risk factor
inflation rate is 3%, the value of your money has effectively
only increased by 0.5%)
• There is no flexibility to access your money if you need it. You
will be penalised for early withdrawal of your money

What are the tax Interest earned must be reported to the SARS when submitting
implications? your annual tax return

52
 Section a
1.1.5 Notice deposits

Notice deposits allow you to invest a lump sum or to make ad hoc monthly deposits into an
investment account. A notice deposit is an investment account in which you earn interest on your
investment. You must give notice before you access your investment. The notice period is pre-
determined, and typically ranges from 7 days to 32 days.

Section b
• Tiered interest rates which means that the higher your
balance is, the higher the interest rate that you will earn
• Interest is usually calculated daily and invested back into the
same account (re-invested) so you benefit from compound
How you will benefit interest
• Your money is protected as you need to give the bank notice
(usually 32 days) if you intend to withdraw part of or your full
investment – thus forcing you to be a little more disciplined

Section c
in your saving

The staff at your local bank branch will be able to open a notice
Who can help you
deposit account for you and advise you of the product features
with this?
and benefits and the costs involved

You’ll need a minimum amount to invest which varies from

Investment amount bank to bank. You can invest a lump sum, make ad hoc deposits
or deposit a monthly amount

Your capital is secured during the term of the investment

Section d
The risk factor
making it a low risk, conservative investment

What are the tax Interest earned must be reported to the SARS when submitting
implications? your annual tax return

Section e
Section f

53
1.1.6 Money Market Funds

Money Market Funds are investment funds (unit trusts) in which Money Market Funds
your money is managed by an investment professional who pools
your money with that of other investors and strives to achieve the These accounts are an
best possible rate of interest for you. Dealing in larger amounts alternative to savings
of money than you would be able to as an individual allows the or fixed deposit
manager to ask for better interest rates. A number of different accounts and are
money market instruments from a number of different institutions short-term investment
are used, and thereby diversify your risk away from one company. accounts.

• There is no defined investment term, so funds can be

invested into a money market account indefinitely and the
rate of return may vary depending on the deposit balance -
How you will benefit returns are normally higher than bank deposits
• Your investment in a money market fund is what is called
liquid, which means that if you need the money, it can be
withdrawn on demand and deposited into your bank account

A unit trust management company, your financial advisor or

your local bank branch will be able to open a money market
Who can help you
account for you and advise you of their specific product features
with this?
and benefits. You must check whether your service provider
charges upfront commission or fees on these accounts

Although it varies from bank to bank there is usually a

minimum opening deposit requirement for lump sum
Investment amount
investments. You can deposit into your investment on an ad hoc
basis or monthly amounts via a debit-order

These are very conservative or safe investments (risk-averse)

The risk factor because you invest in the money market, not the capital
market. Returns are higher than bank deposits

What are the tax Interest earned is taxable and must be reported to SARS when
implications? submitting your annual tax return

54
 Section a
2. OTHER SAVINGS MECHANISMS
2.1 Friendly Societies
Friendly societies
A friendly society or syndicate is established by a group of people Friendly societies
to be able to provide its members with funds for the following are regulated by the

Section b
purpose: Friendly Societies
• funeral expenses, birth of a child or during a period of confined Act, 1956 and
mourning must be registered
with the Financial
• the education of members or their children
Services Board
• to assist members who are unemployed, or maintenance during (FSB).
minority, old age, widowhood or illness
• illness benefits

Section c
2.2 INFORMAL SAVINGS: STOKVEL
A stokvel is an informal savings pool/club to which members
regularly contribute an agreed amount and from which they receive Stokvels
a lump sum payment on rotation.
Stokvels are a
popular way of
saving amongst
Note: Stokvels are not regulated by the FSB.
many people in

Section d
South Africa.

The National Stokvel Association of South Africa (NASASA) is

a self-regulatory organisation authorised by the South African
Reserve Bank in terms of Government Notice 404 in Gazette 35368
25 May 2012.

In 2014 it was estimated that the stokvel industry is worth up to R45 billion.
Stokvels can register with the National Stokvels Association of South Africa.
Section e

Source: NDALANA. L., 2014. Investment in stokvels gaining ground. http://www.fin24.com/Savings/Get-

Saving/Investment-stokvels-gaining-ground-20140709 Date of access: 30 Aug 2015.
Section f

55
3. OTHER TYPES OF INVESTMENTS
The Johannesburg Stock Exchange (JSE) is currently the only
licenced exchange in South Africa. JSE provides a market for buying Buy listed securities
and selling of listed securities. Companies that would like to raise through a licenced
capital come and list on the exchange. Individuals and institutions exchange.
can also make investments in shares through an exchange.

The following financial products are traded on the JSE:

3.1 STOCKS/SHARES
Shares represent ownership of a company. For example,
buying shares in a specific company makes you a part-owner Companies list on the
or shareholder of that company. Most companies list shares exchange in order to
on the stock exchange to raise money to grow their businesses raise capital
and they do not have to pay back the money raised through the
sale of their shares nor are they required to pay interest on the money. Investors buy shares
in the company in exchange for a share of the profits of the company.

3.2 EXCHANGE-TRADED FUNDS (ETF)

ETFs are listed investment products that track the performance
of a group or “basket” of Shares, Bonds or Commodities. These ETFs are passively
“baskets” are known as indices. An example of an index is the managed as they
FTSE/JSE Top 40 Index. An ETF can be bought or sold in the same only track the
way as an Ordinary Share. They are regulated under the Collective performance of the
Investment Schemes Act. ETF pools together many investors’ indices.
money to buy a number of assets, but unlike unit trusts it is listed on
the stock exchange and you can trade it like shares. Investors in the Fund are called unit holders.

3.3 BONDS
A bond is a debt instrument issued for a period of more than
one year with the purpose of raising capital by borrowing. It Government bonds
is a debt investment in which an investor loans money to an are safer than
entity (typically corporate or government) which borrows the corporate bonds.
funds for a defined period of time at a variable or fixed interest
rate. A simple example is vanilla bond where an investor buys a bond from the issuer (e.g.
private company) and receives regular interest payments (called coupons). At the end of
the investment period (i.e. at maturity of the bond) the investor receives their full invested
money (i.e. capital).

56
 Section a
3.4 COLLECTIVE INVESTMENT SCHEMES (CIS)
A CIS is a type of investment vehicle used by investment managers
to pool investors’ money to enable them to access investments CIS are regulated
which they might not otherwise be able to access in their individual in terms of the

Section b
capacities. Through a CIS an investor can also achieve a spread Collective Investment
of investments in assets such as shares, bonds, deposits, money Schemes Act.
market instruments, real estate etc. One of the main characteristics
of a CIS is that investors get to share the risks and benefits of their investment in a scheme in
proportion to the participatory interests in the scheme.

3.5 PARTICIPATION MORTGAGE BOND SCHEME

Section c
A Participation Mortgage Bond Scheme is when a licensed
scheme accepts money from investors and lends it to A Participation
institutions/individuals in order to develop property. A Mortgage Bond
mortgage bond is registered over the property making the Scheme is regulated
property the security for the loan. inn terms of the
Collective Investment
When you invest in this scheme, you as the investor pay money into Schemes Act.
the scheme. The scheme puts the money of investors together
and lends it to people or companies that develop property.

When property developers apply for a loan from the scheme, the scheme registers a bond

Section d
over the property and the property then becomes the security for the loan. This means that if
the property developer does not repay the loan according to the agreement with the scheme,
the scheme can take over the property and sell it. The money from the sale can be used to
pay back investors.

3.6 DERIVATIVES
Derivatives are financial contracts, which derive their value
Derivatives are
Section e

on the underlying asset. The underlying asset can be equity,

index, commodity or any other asset. Some common examples normally used for
of derivatives are Forwards, Futures, Options and Swaps. The risk management
derivative market of the JSE enables you to trade: purposes by the
portfolio managers.
• Bond Derivatives
• Interest Rate Derivatives
• Equity Derivatives
• Commodity Derivatives
• Currency Derivatives
Section f

57
4. Building a successful
investment portfolio
Here are some steps to provide you with guidance when building your investment portfolio:

Decide on your
decide on your investment strategy and
investment allocate assets
strategy and What level of risk are you prepared to take?
allocate assets
This is a good point to get the guidance of a financial advisor to help
you to decide how you want to invest your money.
• Do you want to spread your risk across low, medium and high risk
investments? Investment portfolio
• Do you want to invest your money for example in cash, shares, real A collection of
estate and commodities? financial investments
• How much are you prepared to invest in each area? chosen by you or your
financial advisor

Fill your asset baskets

Fill your asset
baskets Start making your investments. Don’t forget to take tax implications
on your investments into account.

Rebalance Rebalance your investments

your
Rebalance your investments as your needs change. For example, you
investments
might find yourself in a position to be able to take more risk.

58
 SECTION D

“If a child, a spouse, a life partner,

or a parent depends on you and your
income, you need life insurance.”
Suze Orman

59
INSURANCE PRODUCTS
It is very important to invest in a safe long-term financial plan while you
are still young and employed or self-employed. Long-term insurance Period/Term
covers life-changing events such as death, retirement and disability. It Period is the time
is called long-term because you have to pay monthly premiums over a which you, as an
long period of time until you die or your policy becomes payable at a investor, spend
pre-determined date. in the investment
(it is also called
Buying long-term insurance is one way of saving for your old age to
your investment
provide yourself with financial security in retirement. It also helps
horizon).
you to provide for your dependants upon your death or if you become
disabled. Some long-term insurance policies ensure that a specified For example:
amount of money will be available for settling your debt (e.g. housing You are 30 years
bond) after your death. old and have a
retirement annuity.
You must shop around when you are looking to buy insurance. Talk to
You are going to
different financial service providers (FSP) before you choose the one
retire at the age of
that will best suit your needs. You should also check with the FSB to
60. The period of
make sure that the FSP is registered.
your investment is
Let’s look at some of the long-term insurance products that you might therefore 30 years.
want to include in your investment portfolio.

1. Long-term insurance products

Long-term Insurance products

Endowment Health Life Disability Funeral

Policy Policies Cover Cover Insurance

Hospital Whole life Capital

plans cover disability cover

Income
Medical Universal
protector
insurance life cover
disability cover

Term
insurance

60
 Section a
1.1 ENDOWMENT POLICY
An endowment policy is an investment product that you buy from a life
Endowment assurance company. It is set up as a regular savings plan and at the end
policy of a set period (usually a minimum of five years) pays out a lump sum.
The policy may include life insurance and will pay out if you die during
the term.

Section b
This is a long-term ‘forced savings’ product used for investment purposes. Many people use this
type of investment to save for their children’s education.

• Endowments promise a risk-free, guaranteed return on a

specific date provided that you make the required payment
• Higher returns than on bank deposits
How you will benefit • The minimum period for the investment is 5 years
• You can stop your monthly payments temporarily if you are

Section c
short of money, borrow against it, or offer the policy to a
bank as security for a loan

Who can help you An endowment policy is an investment product that you buy from
with this? a life assurance company or through your financial advisor

A small monthly amount or a large lump sum can be invested. If

you add life cover to the policy it acts as a life insurance product
Investment amount
with a life assured and beneficiary, but will only accumulate the
investment amounts paid by you plus the growth

Section d
This is a low risk investment - remember that low risk, usually
The risk factor means low returns. Your investment is locked in for a minimum
of 5 years and cannot be accessed without penalties

Your investment is subject to policyholder tax and is taxed before

What are the tax
investment. After the minimum period of the investment the
implications?
invested amount can be withdrawn tax free
Section e

Life assured: the person whose life has been covered by a life assurance policy

Beneficiary: the beneficiary of a life policy is the person who receives the
payment of the amount of insurance after the death of the insured

Insurance products that South Africans are most aware of are life insurance
policies (69%) and car insurance (68%).
Section f

Source: FSB. 2012. Financial literacy in South Africa: Results of a national baseline survey 2012

61
1.2 Health policies

Hospital Medical
plans insurance

Health
policies

1.2.1 Hospital plans

A hospital plan is a medical plan which helps you to pay for costs associated with admission
to a hospital – whether it is planned or an emergency. Hospital plans are more affordable than
medical aid schemes but payouts are limited to specific amounts. For example, they will pay out
an amount per night’s stay in hospital. It is your responsibility to pay your hospital and doctor’s
costs from this payout. Often, your medical expenses will be much higher than the payout and the
remaining of the bills are your responsibility.
A medical plan is payable monthly and failure to pay your monthly premium will result in your
cover being terminated.
Think about linking a medical insurance to a hospital plan.

1.2.2 MEDICAL INSURANCE

Medical insurance pays a pre-defined benefit every time you undergo a medical procedure
covered by the insurance policy. The medical insurers calculate payouts according to the type of
operation that you are having. For example, if you have an appendix removed you may be paid
out R12 000, while for a heart transplant, the payout may be R200 000. The payout will be made
directly to you and it is your responsibility to ensure that your medical costs are paid.
Medical insurance is payable monthly and should you fail to pay your monthly premium your cover
will be terminated.

1.2.2.1 MEDICAL AID VERSUS MEDICAL INSURANCE

Medical insurance aims to provide you with a lump sum for each day that you are in hospital in
the event of an accident or an emergency. It is like a bridge between hospital fees and medical aid
funds. It is a short-term insurance product for your health (in South Africa, medical insurance is
regulated by the Council for Medical Schemes).
As it is not regulated by the Medical Schemes Act like medical aid is, health insurance can,
legally, offer cover for situations that medical aid can’t. For example, medical aids cannot
provide personal accident disability and loss of limbs cover, as well as death/funeral cover.

62
 Section a
In contrast to health insurance, a medical aid must cover prescribed minimum benefits, and,
rather than covering specific events, they have specified yearly limits on events.
Medical aids also pay in-hospital benefits which may fall short due to the discrepancy between
the rates of the hospital and the scheme cover. This is one of the primary reasons that people
choose to supplement their medical aid with medical insurance.

1.3 Life Cover

Section b
Universal
life cover

Whole life Term

Section c
cover insurance
Life
Cover

1.3.1 Whole life cover

Whole life cover is an ordinary life cover which is valid until you die or surrender the policy. It
covers you against the risk of death. This policy is ideal for a person who wants to leave a fixed
amount of money behind after death, for example, pay up a home loan. It is the least expensive

Section d
form of life cover. The monthly premiums are invested by the insurance company.

1.3.2 Universal life cover

Universal life cover is similar to whole life cover, but has an investment component. The return-
on-investment portion depends on the nature of the investment. It does not guarantee a fixed
rate of growth because it is influenced by the investment performance. However, the chance of
rapid growth makes it a popular choice. You must be aware of the levels of risk in any investment
product as well as your own risk tolerance.
Section e

1.3.3 Term insurance

Term or fixed insurance is ideal if you need to provide life cover for a set period of for example,
while paying off a bond on your house. It is not expensive and you can easily add benefits to it, such
as a lump sum for disability. After the agreed period of time, the cover simply stops. As it is a risk
product, you should be aware that values can go up and down.

Cash surrender value

The cash surrender value is the amount of money a person will receive
when he/she chooses to end a policy and take the proceeds allocated
Section f

under the insurance contract

63
1.4 Disability cover

Capital Income
disability protector
cover disability cover

Disability
cover

You could lose the use of your hands or legs, or suffer from chronic illness, forcing you to stop
working. Disability cover is usually added to life cover, but can also be bought separately. There
are mainly two kinds of disability cover:

1.4.1 Capital disability cover

Capital (or lump sum) disability cover can be added to life insurance. However, it can’t be greater
than the amount of life cover on the policy. You will only be paid out once you provide proof that the
disability is permanent. It can also be added to your endowment policy.

1.4.2 Income protector disability cover

The cover provides a monthly income, with or without yearly increases as stated in the policy.
It can replace a portion of your salary until you recover or die, or the policy matures, whichever
comes first, if you are permanently or temporarily disabled.

Policy matures
This is when a policy reaches the end of its term and becomes payable

64
 Section a
1.5 Funeral insurance
Someone for whom you are responsible may die and you will need money for a funeral. Funeral
insurance provides you with cash for a funeral or benefits in the form of a funeral. This gives you
peace of mind knowing that your loved ones will have the financial means to bury you one day. The
cover can be extended for immediate and extended family.

Section b
You pay a monthly premium and you may receive a lump sum or a benefit that could be in the
form of a funeral. As the policyholder, you can ask for the benefits to be paid in cash rather than
as a funeral.

64% of the South African population hold at least 1 insurance product.

Less than 44% of South African hold no insurance products.

Section c
Source: FSB. 2012. Financial literacy in South Africa: Results of a national baseline survey 2012

Section d
Section e
Section f

65
2. Short-term insurance products
Short-term insurance is a contract with an insurance company
in which a monthly premium or contribution is paid for policy Premium versus
benefits that insure you should an event occur – this is called once-off contributions
a risk. The policy benefit is intended to place you in the same
position that you were in before the loss event. Premium: a monthly
recurring contribution
You can take out insurance to cover your belongings such as a
house, a car or a cell phone or for a health or disability event. Once-off: an initial once-
It can also cover you for legal liability to others – for example, off amount is deposited.
accidentally injuring someone with your car.

You can cancel an insurance policy if you no longer need it and

your cover will stop at the end of the month of your last premium
payment – premiums paid are not refunded whether you have Legal liability
claimed against your policy or not.
Any type of insurance
A person cannot claim from more than one short-term insurance policy that protects an
company for damage suffered because of the same event. individual or business
from the risk that
Short-term insurance policies can be bought through the they may be sued and
insurance company directly or through a financial services held legally liable for
provider or its representative that will place your business with something such as
an insurance company. malpractice, injury or
negligence. Liability
Short-term insurance is regulated by the Financial Services
insurance policies
Board in terms of the Short-term Insurance Act, 1998 (Act No.
cover both legal costs
53 of 1998).
and any legal payouts
for which the insured
would be responsible
if found legally liable.
Intentional acts would
not be covered.

66
 Section a
2.1 Examples of short-term insurance

Motor insurance:

It covers your motor vehicle against collision, fire and theft

Section b
Household contents insurance:

It covers furniture, TV, radio and other valuables in your house

Section c
House owners insurance:

It covers things like bricks, roof, fittings and other things that are needed to
rebuild your house

Personal liability insurance:

It covers damages to a person or property that is not part of your household

Section d
Travel insurance:

It covers things like lost luggage and medical expenses when you travel
outside South Africa
Section e
Section f

67
 Notes

68
 SECTION E

“In retirement planning,

time is your greatest asset.”
Anonymous

69
 RETIREMENT FUNDS
When most people start worrying about retirement, it is often far too late to do anything
about it. None of us want to be poor when we are old and weak, and could need expensive
medical care. One way of building a nest-egg for your retirement is by contributing towards a
retirement fund from the time you begin working.

Retirement Funds

Pension,
Conventional
Retirement or fixed- Living Composite provident &
annuity interest annuity annuity preservation
annuity funds

70
 Section a
1. RETIREMENT ANNUITIES
Retirement Annuities are an investment mainly used to secure a steady, guaranteed income for
you when you retire. Investing in a retirement annuity can be done in a lump sum (such as an
inheritance, a large bonus or lottery winning), yearly or monthly. A portion of the premium that
you pay is tax deductible. You can continue investing until you are between 55 and 70 years old.
Your money can’t be touched until you are 55; you will be penalised for early withdrawal.

Section b
1.1 Retirement annuity
A retirement annuity is a long-term savings plan to provide you with an income in retirement.
When you retire you may take up to one-third of your savings as a cash lump sum and the balance
will provide you with a monthly income, as illustrated in the annuities below.
Retirement annuities can be structured to include life cover and disability to your policy; your

Section c
beneficiaries will benefit from your investment in the event of your death and you will receive an
income should you become disabled.

Retirement annuity contributions reduce your taxable income up to a certain limit – this means that
SARS pays a part of your retirement income. The growth on your investment is also tax free.

1.2 Conventional or fixed-interest annuity

With a conventional or fixed-interest annuity, you pay in a sum of money. At maturity of the policy,
you are guaranteed a fixed income every month for the rest of your life. The disadvantages are that

Section d
your monthly payment remains the same, regardless of inflation rates. Your investment ceases
when you die.

1.3 Living annuity

An income from a living annuity depends on the growth of the amount of money invested. The
growth of the money invested depends on the behaviour of the stock market. If the stock market
does well, your investment will increase, if it falls, your investment will decrease.
Section e

1.4 Composite annuity

This annuity is a mixture of conventional and living annuities. It provides you with a flexible income
like a living annuity and a guaranteed income like the conventional annuity.
Section f

71
2. RETIREMENT FUND
A retirement fund is one of the best ways to save towards retirement.

2.1 Pension, provident and preservation fund

The purpose of both pension and provident funds is for you to provide yourself or your dependents
with an income upon retirement. You and your employer contribute a certain percentage of your
monthly salary towards one of these funds.

The main difference between these two retirement funds is how you receive your fund benefit at
retirement:

Pension Fund Provident Fund

• You may choose to receive up to one- • You may choose to take your entire
third of your retirement benefit as a retirement benefit as a lump sum
cash lump sum - A portion of this may be tax-free,
- If you do not take this benefit your but you will be taxed on the portion
full benefit will be paid monthly, which is not exempt from tax
resulting in a higher monthly
• If you resign or are dismissed you may
pension
transfer your provident fund benefit
• The remaining two-thirds may be to a ‘preservation provident fund’ to
taken as a monthly payment safeguard your retirement savings
- You will be taxed on this monthly - You won’t be taxed on this transfer
amount at the average retirement - You are allowed one withdrawal
taxation rate before retirement
• If you resign or are dismissed you may
transfer your pension fund benefit
to a ‘preservation pension fund’ to
safeguard your retirement savings
- You won’t be taxed on this transfer
- You are allowed one withdrawal
before retirement

72
 Section a
You also have the option to withdraw all the cash when leaving a company before retirement.
However, this lump sum will be taxed (except for a very small portion, which is tax-free).
It is advisable to avoid spending this money as you will need this money when you retire.

Section b
Another consideration to be aware of is whether your pension fund or provident fund
offers death or disability cover. In the event of your death, the retirement fund pays your
beneficiaries all the contributions you have made to your retirement fund plus the growth
on your investment.

If you have access to the internet the FSB provides a retirement savings calculator that you can
use to determine what you should be saving to ensure that you have a comfortable retirement.

Section c
Use the following link to get to the calculator:
https://www.mylifemymoney.co.za/consumer/tools/pages/RetirementSavings.aspx

Section d
Section e
Section f

73
 Notes

74
 SECTION F

“Know what you own,

and know why you own it.”
Peter Lynch

75
Protecting your savings and
investments
You have worked hard for your money, so be careful with it once you have it, and make it work for
you. Be aware of get-rich-quick schemes – if it sounds too good to be true, it probably is. Every day
people invest their life savings into ‘you can’t lose’ offers which see them losing their life savings.

1. Identifying investment scams

If you are not paying attention, it is easier than you think for a con artist to con you out of your
money. Investment scams come in many forms and can be so clever that it is hard to see what
is true and what isn’t.

The South African stock market offers an investor an average return of 15% per annum.
An investment return of more than this should make you think twice. If the offer is genuine
then the risk is going to be much higher and there is a huge possibility that you are going
to lose money.

1.1 Other warnings signs to take note of

• Any investment supposedly exclusively available to ‘just my clients’
• Any investment pitch that creates a sense of urgency (i.e. claims that the opportunity may
not last long or that you must get in now) – ‘I can’t promise how long this offer will last’
• Any investment that can’t show proof that it’s operating in the framework of the regulatory
environment – check with the FSB before committing to something and losing your hard
earned money

76
 Section a
Two common get-rich-quick schemes are the Ponzi Scheme and the Pyramid Scheme:

The Ponzi scheme The Pyramid scheme

Section b
A Ponzi Scheme is a fraudulent/dishonest Pyramid Schemes often recruit
investing scam promising high rates of members at seminars and home
return with little risk to investors. meetings.

What seems to be an ‘above board’ Typically you will be asked to pay a

business will invite you to invest in their joining fee or entry payment. The
business with a promise of unusually scheme relies on your convincing
high returns on your money over a short other people to join up and to pay their
period. joining fee. For everyone to make a
profit there needs to be an endless

Section c
The way this scheme operates is to
recruitment of new members. The
encourage investors to invest. The
number of people that join the scheme
principal or ‘owner’ of the scheme provides
will dry up, leaving no money to pay
a front to investors of a very successful
out as profit.
business. The investor’s money is spent
on expensive premises, clothes and cars Some pyramid schemes hide their
to give the outward impression of success. main purpose by selling overpriced
or poor quality products, but making
The scheme generates the promised
money out of recruiting new members
returns for older investors by finding new
is their main aim.
investors – in other words older investors

Section d
are paid out promised returns using new The people at the top of the pyramid
investors’ money. make money from the people that they
convince to join the scheme – they
While there are new investors and the
keep the joining fees and any other
promised returns are being paid the
payments made by the people that
scheme will continue. Eventually, the
they get to join.
scheme collapses as there is a limit
to the number of new investors whose It is against the law to promote or
money can be used to pay returns to older participate in a pyramid scheme. Many
investors. friendships and relationships have
Section e

ended through pyramid schemes.

Unfortunately, most people affected by
this scam are the elderly who usually use
their retirement savings to invest.
Section f

77
1.2 How to keep an eye on your investments

Ask a Avoid placing Be cautious of

Do your financial your money opportunities that
homework advisor for at risk offer unrealistic
advice returns

Take Be cautious of Go for growth when you

responsibility for opportunities that are young and income
your savings and are only available to when you are old
investments ‘selected’ clients

Use registered and accredited financial Investing is a long-term

institutions that are regulated and commitment for your future gain
supervised by the South African
Reserve Bank or the FSB

Make sure you know

View recommendations enough to keep an eye
Don’t rush
to keep changing your on the developments in
into anything
portfolio with caution investments, particularly
your own investments

Diversify to limit or
spread your risk Make sure you are
aware of charges
Watch out for people that
penalties and tax
claim to be investment
implications
gurus – they also get it
Stick to the basics
wrong sometimes

78
 Section a
Even if you have a trusted relationship with your financial advisor, it doesn’t mean you should give
them control over your money.

Taking responsibility for your own financial welfare:

Section b
Do not give your advisor or anyone else a power of
Power of attorney warning
attorney.

Be wary of blank Never sign a blank document given to you by your advisor
documents or anyone else.

Understand and agree with what your advisor will do for

Set boundaries
you.

Section c
Keep all your receipts and other documents in one
place to track your money and check statements for
mistakes. Most people get investment statements and
Keep your paperwork and
reports twice a year. Be sure all letters or emails about
track investments
your investments are sent to you. When you invest with a
company, make sure you receive a receipt or statement
within a month - if not, call the company and ask for one.

If you are going to be unavailable for a long time,

Make arrangements for
authorise an independent person to act for you and to

Section d
lengthy absences
check what your advisor is doing.

Power of attorney
A power of attorney is a document that allows you to appoint a person or
organisation to manage your affairs if you become unable to do so
Section e
Section f

79
 Even though we seldom use cheques these days, never
write cheques payable to your advisor if the money will
Writing cheques /
be used for investments. Make the cheque payable to
depositing money
the product provider instead. Likewise, do not deposit or
transfer money into your advisor’s bank account.

Always make sure any electronic payments or cheques

Check your payments have the right account number and electronic payment
details.

Act immediately if something does not add up or look

right. Contact your advisor and if the matter is not
Protect yourself from
sorted out quickly, make a formal complaint. If you
fraud
suspect fraud or dishonesty you should contact the FSB
immediately.

If you’re unhappy about the service you’ve received from a financial advisor, don’t be afraid to
complain – see the section on filing a complaint. Even if you have a good relationship with your
advisor, you should take steps to protect yourself from fraud. It’s your money, you’ve worked hard
for it – look after it.

80
 Section a
1.3 Your Last Will and Testament

Section b
Section c
A last will and testament is important for you to ensure that you decide who your beneficiaries
and the executor of your estate should be once you have passed away. It also places you in
a position to appoint a guardian of your choice to take care of your children. Leaving a will
ensures that the people that you want to benefit from your hard earned money will do so.

If you die without a will (intestate) the Master of the High Court appoints an executor of your
estate who will distribute your estate according to the law. This may include beneficiaries
whom you may not have wished to benefit or may exclude persons whom you would have
preferred to benefit.

Section d
It is important to have a person with the necessary knowledge and expertise to draw up your
will. A law firm, your bank, or a trust company can help you in drawing up a will. Once the will
is fully completed, you sign and date it in the presence of two witnesses in order for it to be
valid. Both witnesses must be of the age of 14 or above and be competent to give evidence in
a court of law. A person must be of sound mind as a test of his/her ability to give evidence in
court. A beneficiary in a will must not be involved in the drawing up of or attesting to a will as
witnesses. A person who attests to and signs a will as a witness or is involved in the drafting
of a will is disqualified from benefiting under the will.
Section e
Section f

81
1.3.1 Documents you need to draw up your will

You need the following documents to draw up your will. Use this checklist to make sure that you
don’t forget anything:

CHECKLIST

The name and identification details of the executor of your estate YES NO

The name and ID number of your spouse and how you are married (in
YES NO
community of property, out of community of property, etc.)

Copy of a marriage certificate. Did you divorce recently? If so, a copy of

YES NO
the decree of divorce and settlement agreement will be required

The full names and ID numbers of all your children including adopted
YES NO
and stepchildren you wish to benefit from your will

The names and ID numbers of any grandchildren you would like included YES NO

The name and contact details of a guardian in case you have minor
YES NO
children

Details of the assets you wish to be donated to institutions such as a

YES NO
church, hospice, orphanage, etc.

Details of any other party or institution you wish to benefit YES NO

Copies of title deeds in respect of immovable properties in South Africa

YES NO
or mortgage bonds thereof

Copies of insurance policies, such as endowment policies, life policies,

YES NO
credit life policies etc.

An inventory of liabilities YES NO

82
 Section a
Your financial advisor can assist you to draw up your will or refer you to someone that
specialises in this. It is not recommended that you do this yourself as your will must be clear
and concise and represent your true intentions. There are also certain legal requirements for
your will to be valid. You must be aware of estate duty payable on your estate after your death.

Section b
Make sure that you revise your will from time to time especially if life-changing events have
taken place.

Your will must be kept in a safe place. Most banks, accountants, trust companies, lawyers
and registered financial advisors keep wills on behalf of their clients. It is advisable to make
a copy of your will and advise your executor where it is kept – also let them know where the
original can be found.

Section c
Section d
Section e
Section f

83
1.4 Keeping Records
It is important that you keep records of all your savings and investments. You will need them for
tax reasons as well as for keeping track of your personal financial plan.

01 Month 01 Year

• ATM receipts: keep for 1 month until • Quarterly investment

you have checked the transactions statements
against your bank statement
• Pay slips
• Utility accounts
• Bank statements

03 Years 07 Years

• Income tax returns • Records of paid up loans e.g.

vehicle finance, home loan or
• Medical bills and cancelled insurance
furniture accounts that have
policies
been paid in full
• Records of selling a house
(documentation for Capital Gains Tax)
• Records of selling a stock
(documentation for Capital Gains Tax)
• Annual investment statements
• Sales receipts for warranty purposes

84
 Section a
Section b
Whilst Active Forever

• Contracts • Marriage certificates

• Insurance documentation • Divorce decrees
• Shares and stock certificate • Death certificates

Section c
• Title deeds • Wills
• Records of pension fund membership • Adoption papers
and retirement funds
• Birth certificates

* These documents should be kept in a very safe place, like a safety deposit box.

Section d
Section e
Section f

85
1.5 What are your rights?
• A written quotation
• Policy document within 30 days of signing the application

You have • Information on how to submit a claim

the right to • Cost of insurance
information • Commission paid to intermediary agent
• Inclusions and exclusion of the policy
• Physical address and telephone number of the provider

You have the

• Grace period (an allowance of time) must be stipulated in the
right to take
time off policy

You have
• You may decide not to take up the contract within 30 days of
the right to
signing the application. This is called a ‘cooling off’ period
cancel

You have
the right to • The contract must also provide you with the telephone and fax
know who to numbers, physical and email addresses of the ombudsman for
complain to long-term insurance

86
 Section a
1.5.1 What are your responsibilities?

• Choose a financial service provider (FSP) that is registered with

You have to
the Financial Services Board (FSB)

Section b
You have to • Ask to see the FSP’s licence

Section c
You have to • Make sure the paperwork is complete before you sign it

• Ask questions and ensure that the FSP answers them in clear
You have to and simple language which you can understand so that you have a

Section d
clear understanding of what you are buying

You have to • Store the policy document in a safe place

Section e

• Read through the entire contract document before you sign

You have to • You have to make sure you understand what you are going to
be paying for
Section f

87
How are you protected?

The FAIS Act, 2002

The Financial Advisory and Intermediary Services Act, 2002 (FAIS Act), came into operation on 30
September 2004. The purpose of the FAIS Act is to protect consumers of financial services and
to professionalise the financial services industry. To achieve this the FAIS Act imposes certain
requirements on providers of financial services to ensure that consumers receive proper financial
advice, that they are provided with sufficient information to make informed investment decisions
and that they are dealing with fit and proper advisors and intermediaries.

What financial products are governed by the FAIS Act?

The following products are regarded as financial products for purposes of the FAIS Act:
1. Any type of long-term insurance policy (e.g. life, disability, funeral cover and long-term savings
plans)
2. Any type of short-term insurance policy, including cover for personal and business purposes
(e.g. house, household content, car insurance, cell phone and commercial etc.)
3. Bank deposits (e.g. call deposits, notice deposits and savings accounts)
4. Retirement and pension fund benefits (retirement annuities, provident funds and pension funds)
5. Collective investment schemes (unit trusts)
6. Securities and instruments, including shares, equities, derivatives, bonds and money market
instruments
7. Health service benefits (hospital plans and medical aid plans)
8. Foreign investment business
9. Friendly society benefits (e.g. burial society)

88
 Section a
Who can provide advice and/or intermediary (financial) services?

The FAIS Act requires that any person who gives advice and/or renders an intermediary service in
respect of a financial product must be authorised as a financial services provider, also referred to
as an FSP, or must be appointed as a representative of an authorised financial services provider.

Section b
Persons rendering financial services on behalf of an FSP are called representatives. The FSP is
authorised by the Financial Services Board and representatives are appointed by the FSP. An FSP
can be a natural person (sole proprietor) or a legal entity.

An FSP must have one or more key individuals that are responsible for the management or
oversight of that part of the business of the FSP relating to the rendering of financial services.
The key individual of an FSP is subject to the approval of the Financial Services Board to ensure
that only persons who are fit and proper are appointed as such.

It is the responsibility of the FSP to ensure that its representatives are fit and proper. This, among

Section c
others, entails that the FSP must check that its representatives are persons who have character
qualities of honesty and integrity and that they are competent to render financial services.

What should you check?

You should check that the person providing the advice and/or rendering the intermediary service
is either an FSP or a representative of an FSP and that he/she is authorised to render financial
services in respect of the financial product he/she wants you to invest in, buy or sell.

Section d
Only 44% of all South Africans are confident of their financial knowledge and
need no advice, compared with 36% who are not confident.

Source: FSB. 2012. Financial literacy in South Africa: Results of a national baseline survey 2012
Section e
Section f

89
2. Treating Customers Fairly
Treating Customers Fairly (TCF) is an outcomes based regulatory and supervisory approach
designed to ensure that specific, clearly articulated fairness outcomes for financial services
consumers are delivered by regulated financial providers. Organisations are expected to
demonstrate that they deliver the following 6 TCF Outcomes to their customers throughout the
product life cycle, from product design and promotion, through advice and servicing, to complaints
and claims handling – and throughout the product value chain:

1. Customers can be confident they are dealing with firms where TCF is central to the corporate
culture
2. Products & services marketed and sold in the retail market are designed to meet the needs of
identified customer groups and are targeted accordingly
3. Customers are provided with clear information and kept appropriately informed before, during
and after point of sale
4. Where advice is given, it is suitable and takes account of customer circumstances
5. Products perform as firms have led customers to expect, and service is of an acceptable
standard and as they have been led to expect
6. Customers do not face unreasonable post-sale barriers imposed by firms to change product,
switch providers, submit a claim or make a complaint

Complaints Procedure

Any person who wants to submit a complaint against a regulated entity must follow the following
process:

Complaints to the
Complaints to the FSB
Ombudsman

The FSB will strictly deal with complaints This is a basic guideline to follow
regarding contravention of the Acts it administers. when submitting a complaint. It is
Complaints may be made to the registrar by a recommended to get the relevant
letter, email or by personal visits. A formal written complaint procedure to follow from
complaint should always be submitted to the the ombudsman’s office you would
registrar. The complainant or a person acting on like to submit the complaint to.
their behalf e.g. the ombudsman, the broker etc.
may make complaints. Details of the complainant,
the efforts made by the person to resolve the
matter with the body concerned, reference numbers
and copies of any relevant correspondence in the
possession of the complainant should be provided at
the time of complaint.

90
 Section a
You must submit a formal complaint to the institution you are experiencing the
problem with. The institution should be given the opportunity to resolve the
problem before it is referred to the ombudsman /adjudicator

Section b
As a suggestion, approach the internal complaints officer of the relevant institution
as this may help speed up the process

Give the institution 30 working days (6 weeks) to rectify/resolve your complaint

Keep a copy of any letters or correspondence between you and the institution

Section c
If your complaint is not resolved or you are unhappy with the outcome, or you do
not receive a response at all, then you may approach the office of the relevant
ombudsman /adjudicator

Ensure that you provide the ombudsman with copies of supporting documents
referred to in the complaint, including correspondence with the institution

When you write a letter of complaint, set out the facts as clearly as possible

Section d
Write down the facts in a logical order and stick to what is relevant. Include
important details like your claim number or your policy number

Your options when lodging a complaint

• Submit a formal complaint to the relevant ombuds office. Note:

• Approach the small claims court. If you decide to follow

Section e

the legal route, the

• Consult with an attorney to pursue the matter by means of
ombuds office will not
further legal action.
be able to assist you.
Section f

91
Industry Related Complaints: Who to contact

There are many different types of complaints and depending on the complaint, you would need to
contact the relevant ombudsman or adjudicator’s office.

Pension Funds +27 12 346 1738

www.pfa.org.za [email protected]
Adjudicator: +27 12 748 4000
Long-term +27 21 657 5000
Insurance www.ombud.co.za [email protected]
+27 860 103 236
Ombudsman:
Short-term
Insurance www.osti.co.za [email protected] +27 11 726 8900
Ombudsman:
Ombud for +27 12 762 5000
Financial Services www.faisombud.co.za [email protected]
+27 12 470 9080
Providers:
Ombudsman for
www.obssa.co.za [email protected] +27 11 712 1800
Banking Services:

National Credit +27 11 554 2600

www.ncr.org.za [email protected]
Regulator: +27 860 627 627

Credit Ombud: www.creditombud.org.za [email protected] +27 861 662 837

Office of the
Motor Industry www.miosa.co.za [email protected] +27 861 164 672
Ombudsman of SA:
Council for complaints@
www.medicalschemes.com +27 12 431 0608
Medical Schemes: medicalschemes.com
National
Consumer www.nccsa.org.za [email protected] +27 12 761 3200
Commissioner:
Consumer Goods
and Services www.cgso.org.za [email protected] +27 860 000 272
Ombud:
+27 800 202 087
Financial Services
www.fsb.co.za [email protected] +27 12 428 8000
Board:
+27 12 428 8012

92
 Section a
Bibliography
DICCIANNI. C., 2015. Communicating with your financial planning partner. http://www.
lifetoolsforwomen.com/m/comm-fin-plnr.htm Date of access: 19 Aug 2015.

FINANCIAL SERVICES BOARD. 2012. Financial Literacy in South Africa: results of a national
baseline survey 2012.

Section b
FIN24. 2012. http://www.fin24.com/Money/Money-Clinic/Investments/The-power-of-
compoundinterest-20121012 Date of access: 24 Aug 2015.

FISHER-FRENCH. M. 2011. How to find a good financial advisor. http://mg.co.za/article/2011-02-

07-how-to-find-a-good-financial-advisor Date of access: 20 Aug 2015.

JOHANNESBURG STOCK EXCHANGE (JSE). 2015. Government bonds. https://www.jse.co.za/

trade/debt-market/bonds/government-bonds Date of access: 20 Aug 2015.

Section c
NDALANA. L., 2014. Investment in stokvels gaining ground. http://www.fin24.com/Savings/Get-
Saving/Investment-stokvels-gaining-ground-20140709 Date of access: 30 Aug 2015.

ORMAN. S., 2015. Record keeping. http://www.suzeorman.com/resource-center/record-

keeping/ Date of access: 25 Aug 2015.

JOHANNESBURG STOCK EXCHANGE. 2015. Government bonds. https://www.jse.co.za/trade/

debt-market/bonds/government-bonds Date of access: 20 Aug 2015.

Section d
Section e
Section f

93
 Notes

94
Notes

95
 Notes

96
Legislation
Lists of Acts administered by the Financial Services Board
Collective Investment Schemes Control Act (Act No. 45 of 2002)
Credit Rating Services Act (Act No. 24 of 2012)
Financial Advisory and Intermediaries Services Act (FAIS Act) (Act No. 37 of 2002)
Financial Institutions (Protection of Funds) Act (Act No. 28 of 2001)
Financial Markets Act (Act No. 19 of 2012)
Financial Services Board Act (Act No. 97 of 1990)
Financial Services Ombud Schemes Act (Act No. 37 of 2004)
Financial Supervision of the Road Accident Fund Act (Act No. 8 of 1993)
Friendly Societies Act (Act No. 25 of 1956)
Inspection of Financial Institutions Act (Act No. 80 of 1998)
Long-term Insurance Act (Act No. 52 of 1998)
Pension Funds Act (Act No. 24 of 1956)
Short-term Insurance Act (Act No. 53 of 1998)

Publications
The Consumer Education Department (CED) of the Financial Services Board (FSB) publishes a number of
financial literacy materials and distributes it free of charge. Below is a list of the resources produced to date:
· The Role of the FSB · Capital Markets
· The Role of Trustees · Unclaimed Benefits
· Consumer Tips when Buying Insurance Policies · Pension Fund Surplus
· Funeral Assistance · Retirement Planning
· Financial Guide for Youth · Your last Will and Testament
· FAIS Act – Protecting the Consumer · FAIS Regulatory Exams
· Long-term Insurance · Trustee Toolkit Brochure + Interactive Case Study DVD
· Short-term Insurance · Collective Investment Schemes
· Shares · Make the most of your money – Booklet 1
· Your Rights as an Investor · Use your money wisely- Booklet 2
· Budget Booklet · Make your money work for you – Booklet 3

For your copy of the above resources call +27 12 428 8123, or email [email protected].
These resources can also be viewed online by visiting www.fsb.co.za or www.mylifemymoney.co.za

Funders
Allan Gray Aon Insurance Bateleur Capital Bidvest Bank
Coronation Asset Management Foord Asset Management Investec Bank Limited Investec Asset Management
Liberty Group Oasis Crescent Fund Trust Monument Credit Novara Investments
BNP Paribas Cadlz Stockbroking Peregrine Securities Prudential Portfolio Managers Regiments Capital
Sasria Strate

Disclaimer
While every care and effort have been taken to ensure the accuracy of the information provided, the Financial Services
Board makes no representation and gives no warranty, whether expressed or implied, relating to the correctness of the
information in this publication. The Financial Services Board accepts no responsibility for, and the user indemnifies the
Financial Services Board from, any loss, liability, damage or expense of whatsoever nature (including but not limited
to direct, indirect and consequential loss), arising from the reliance on information contained in this publication, or
otherwise connected with the information in this publication [whether arising from breach of contract (fundamental or
otherwise), delict, negligence, gross negligence or otherwise]. The copyright of all the content and design and layout is
owned by the Financial Services Board, except where otherwise stated. No part of this publication may be reproduced
or transmitted or reused, sold, or be made available in any manner or any media, unless prior written consent has been
obtained from the Financial Services Board.
 © 2016

Contact Details
Physical address: Riverwalk Office Park, Block B, 41 Matroosberg Road
(Corner Garsfontein and Matroosberg Roads), Ashlea Gardens, Extension 6, Menlo Park,
Pretoria, South Africa, 0081
Postal address: P.O.Box 35655, Menlo Park, 0102
Call centre: +27 800 202 087 / +27 800 110 443
Reception: +27 12 428 800
Consumer website: www.mylifemymoney.co.za

98 Email: [email protected]/[email protected]
Website: www.fsb.co.za