A guide to lead you to security

While South Africa has a growing black middle class, a large proportion of the population is financially illiterate.

Many people need a helping hand when navigating the huge variety of investment and savings products and seductive credit offers.

Solly Keetse, chairman -elect of the Financial Planning Institute (FPI), said this is why financial planning is more important than ever. And the high debt levels underline the need for more financial education.

"Financial planning is about helping consumers achieve their life goals - this could be buying a home, buying a car, or planning for retirement," said Keetse.

He said one has to differentiate between financial advice, such as brokers and agents, and financial planning.

"The remuneration of people we would traditionally call brokers and agents is regulated by the Long Term Insurance Act and that remuneration is in the form of a commission. Financial planning is different - because with a financial planner, you draft a plan that suits you," he said.

"The FPI does not prescribe to its members whether to charge a fee or commission, but globally the trend is that financial advice would be linked to a product - whereas when somebody drafts a financial plan for you, they don't necessarily promote any product

"The cost of financial planning is not regulated. The FPI advocates a fee-based model of charging because this is an open, free market: a consumer can negotiate with a financial planner. It depends on how complicated the financial plan is."

Keetse said countries such as the UK and Australia are moving towards banning commissions on investment products from 2012, and South Africa could follow suit.

"Commission is paid by product providers such as Old Mutual, Momentum, Liberty, etc. Commission should be negotiated separately from the advice that is given by a financial adviser," said Keetse.

The recently released report on savings and investment by Old Mutual showed that people may prefer to take an informal approach to their finances. The index showed that 88% of respondents were feeling the pinch of the recession - up from 82% six months ago. About 75% of respondents now save money before they buy, rather than buying on credit.

The index also showed an 8% decrease in credit card ownership and that 36% of the black respondents belonged to a stokvel.

While the number of stokvels has declined since July 2011, the index showed that stokvels, excluding burial societies and grocery schemes, are now worth R38.6-billion a year.

"People are making a plan and being more careful, more pragmatic and less 'spooked' about their finances," said Old Mutual chief researcher Lynette Nicholson. "Cutting expenses and getting rid of short-term debt take priority ahead of saving."

The index also found that South Africans were prone to save for short-term commitments, such as their children's education, rather than retirement-funding needs.

Keetse said this is where financial planning can help fill the gap. "When you approach a financial planner, you have to do holistic financial planning. Financial planning has six disciplines: retirement planning, investment planning, risk planning, health planning, tax planning and estate planning. You look at your financial goals pre-retirement and post-retirement," he said.

He underlined that financial planning is needed by everyone, regardless of their salary level.