How financial stress impacts cognitive function and the role of education in South Africa
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A lack of financial health isn't just a personal problem – it's a societal crisis, trapping people in poverty, deepening inequality, and even impairing their ability to think clearly. High levels of debt and financial stress cut across income brackets, education levels, and job titles. There is no immunity: financial instability has become the norm, not the exception.
Her Majesty Queen Máxima of the Netherlands, the UN Secretary-General's Special Advocate for Financial Health, made this very clear during her recent visit to South Africa, during which she had a round table discussion with guests that included two of our learners who had completed an online course through our partnership with Discovery Bank.
In fact, it was during this session that the Queen went so far as to point to a peer-reviewed study, Poverty impedes cognitive function, which found that those who are already struggling financially and then become more anxious about money can lose as many as 13 IQ points. Financial stress literally reduces cognitive function and works out to about a 16% reduction in IQ for South Africans.
This isn't isolated research. A paper published in the Journal of Economic Psychology just last year, Financial scarcity and cognitive performance: A meta-analysis, co-authored by several specialists in their field, noted that a lack of financial resources seems to have detrimental effects on cognitive functioning.
The good news is that it also found that investing in financial education enhances cognitive functioning as well as improves people's financial situations.
Our research, conducted across tens of thousands of learners referred from institutions like 1Life, Discovery Bank, and other major financial services providers, reveals the poor state of financial resilience. Only 35% of participants managed to spend less than their salaries, and just 42% reported having emergency savings. After a financial education course, two-thirds of learners are back to spending within their salaries, and 63% have emergency savings.
It is, as Queen Máxima highlighted, exciting to see South Africa making progress in boosting financial health and intentionally moving away from focusing on financial literacy to pursuing financial intelligence and financial health instead.
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A more financially inclusive economy also aligns perfectly with the Financial Sector Conduct Authority's (FSCA's) 2025-2028 strategy. The FSCA is focused on empowering consumers, improving market integrity, and fostering an all-encompassing, innovative financial sector. Their approach supports the UN's vision: people and communities should comfortably cover expenses, handle shocks, and plan for the future.
The UN's aims with financial health programmes are to help achieve some of its Sustainable Development Goals, such as reducing – if not eliminating – poverty and inequality.
Juxtaposed with this, the FSCA's strategy wants to improve industry practices to ensure fair outcomes for all financial services clients, foster an innovative and sustainable sector, act against misconduct, and help households and small businesses become more financially resilient – especially in an ever-changing digital world.
Technology can expand access to financial health as well as make such services more accessible, innovations that Queen Máxima champions. The FSCA agrees but stresses the need for smart regulation. Their pending Conduct of Financial Institutions Bill aims to create a 'regulatory framework that is robust yet streamlined' and future-fit, ensuring consistent and predictable outcomes for all financial customers.
Yet, legislation and laudable aims aren't enough. To turn these policy initiatives into real change, we have found the magic in how the capability of improving financial behaviour is intrinsically and authentically implemented through meaningful partnerships across the private, financial services, and education sectors.
As business leaders, we have a responsibility to join this revolution to empower people to understand money and investing as well as make it possible for them to implement what they've learned, benefiting themselves, their families, and their communities.
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