2020 Financial Literacy Week (FLW)

By Doreen Kambanganji-Silungwe

The Financial Literacy Week (FLW) is an annual awareness campaign which is commemorated to educate and sensitise the public about various topics on managing finances. The campaign is an adaptation of the Global Money Week and is also aimed at meeting the objectives of the National Strategy on Financial Education (NSFE). The main objective of the NSFE is to provide Zambians with knowledge, understanding, skills and confidence to help them make prudent financial decisions.  This year, the Financial Literacy Week will run from 23rd to 29th March, 2020 under the theme “Learn.Earn.Save.Invest: Be Money Smart to Live a Better Life.

Unfortunately, the commemoration of the FLW will not involve physical outreach activities as was planned due to the Corona Virus Pandemic. However, the financial sector will proceed with outreach programmes on radio, television and social media. This is because we believe that we need financial education even as we manage this pandemic as economists are predicting an economic crisis ahead.

The 2020 theme continues from the 2019 concept which called on citizens to be knowledgeable about the legitimate financial products and services in the wake of increased financial scams that thrive on the ignorance of citizens and the human desire to amass wealth. Below are some of the key messages that we will be focusing on during this years’ financial education engagements.

1. PLANNING AND MANAGING FINANCES

a. Importance of Saving and How to Save

It is important to cultivate a culture of saving at a young age.

Tips for parents:

  • Encourage children (three years and up) to save by introducing them to piggy banks.
  • Take children to a formal financial institution for a tour to inspire them to open an account for their savings.
  • Explore the available formal financial products and start saving for children’s key life events such as education.

Tips for children with piggy banks:

  1. Set goals for how you plan to use your money.
  2. You can have several piggy banks and put the name or picture of the desired item (goal) on each. e.g. saving for a trip, donations, toy, etc. Keep a picture/written reminder of the desired item near the piggy bank.
  3. Keep your piggy bank safe.
  4. Deposit the money in your piggy bank into a bank account.

Tips for adults:

  • Set an achievable saving target.
  • Saving regularly and consistently.
  • Save before you spend.
  • Explore formal and informal savings products that you can use.

b. Budgeting

  • Understand the difference between needs and wants. Some things you want may not be necessary.
  • Add all income sources and track every expense.
  • Budget at the beginning of every month.
  • Develop a medium term and long term budget.
  • Review your spending habits.

2. INSURANCE: RISK AND PROTECTION

  • Insurance can be used to cover some personal and business financial risks and expenses.
  • Review your risks and options before buying an insurance policy.
  • Make sure you understand the policy before signing.
  • Read what is covered and not covered by the policy – do not rely on the sales peoples’ pitch.
  • Check details of how to make the insurance claim in case you experience any loss.
  • Tell a trusted family member about your insurance policy so that they can make a claim in case you are not there.

3. PENSIONS

  • Take a proactive role in saving for retirement, ideally from an early age.
  • Understand the changing retirement environment. The current formal retirement age in Zambia is 60 years (with 55 years being early retirement and 65 years being late retirement).
  • Learn about the various retirement saving options (private pensions, retirement savings plans, social security, etc.).
  • In Zambia NAPSA, which is a social security, is mandatory and can be complimented with an occupational pension or individual pension plan.
  • Occupational pension schemes are employment based. Your employer needs to have a pension scheme in order for you to become a member of the scheme.
  • If you are a pension scheme member, it is important to know whether your scheme is a defined benefit, a defined contribution or a hybrid (a combination of the two).
  • Ensure that your pension scheme trustees are trained. PIA conducts three (3) trainings annually.
  • As a member, it is important to ensure that your contributions are submitted as provided under the Scheme Rules. Statements are circulated annually but you are at liberty to request for one, at any time, from your Pension Fund Administrator.
  • Avoid making impulsive choices and investments when you receive your pension-it is your major last pay.
  • Pensioners should learn about the advantages and disadvantages of annuity options before purchasing.
  • As a pension stakeholder, ensure that you are familiar with the laws governing pension schemes in Zambia. Visit the PIA website (www.pia.org.zm) and offices to find out more about pensions.

4. INVESTMENTS

a. Behavioural biases that may affect your investment decisions

  • Avoid making impulsive investment decisions.
  • Make investment decisions based on factual information.
  • Research and identify the financial institution you want to invest with.

b. Basic investing principles and concepts

  • Understand the difference between saving and investing: Saving involves putting money away for a future need in a low- to no-risk account, while investing involves earning a significant return on your money/capital (investment) over a period of time.
  • Create a liquid savings reserve (emergency fund).
  • Choose investments that suit your risk tolerance level and investment objectives.
  • Know the type of investments that are available (e.g. fixed deposit, unit trust, shares, treasury bonds/bills including non-financial investments like property).
  • Diversify investments.
  • Consider investments in which the features, fees and risks can be explained by the provider.
  • Assess the pros and cons of investment options available and choose the option that best fits you.
  • Check if the institution you are dealing with is licensed by any of the financial sector regulators (Securities and Exchange Commission (SEC), Bank of Zambia (Boz) or the Pensions and Insurance Authority (PIA)).

5. BEWARE OF PONZI SCHEMES

A Ponzi scheme is an investment scam that involves the payment of purported returns to existing investors from funds contributed by new investors.

a. Avoid Ponzi Schemes, Scams and Fraud

  • Do not send money to a stranger.
  • Do not give out personal information to strangers.
  • Be cautious of get-rich-quickly investment schemes.

b. Ponzi Schemes Attributes

  • High Returns: Promoters often solicit new investors by promising to invest funds in opportunities claimed to generate high returns with little or no risk.
  • Business Sham: Rather than engaging in legitimate investment activity, the promoters focus on attracting new investors to make promised payments to earlier investors.
  • Lavish lifestyle: Promoters usually divert some of the “invested” funds for personal use. Adverts or marketing strategies that are premised on opulence.
  • Mass Marketing and Product Sophistication: As with many frauds, use of the latest innovation, technology, product or growth industry to entice investors and give their scheme the promise of high returns.
  • The Ponzi bubble bursts when the promoter simply cannot keep up with the required payments (the promised high returns).

Finally, remember to only deal with licensed financial service providers (licensed by BoZ, PIA or SEC), keep copies of contracts and receipts of all financial transactions and most important ensure that you understand your rights and obligations before you sign any contract.

For comments, questions or clarifications, send us an email at pia@102.23.123.62 or follow us on our Facebook page, Pensions and Insurance Authority. You can also call us on 211 251 401/5  or 0977 335809 or 0965 255136.