Perceptions, inflation and the real Income

The recent shrinking economy has had the worst impact on households and businesses over the last 18 months. The consequences have been dire for many South Africans, and other contributing causes are the continual load shedding and taxi strikes, which can potentially become violent events.

The ongoing increase in the price of petrol and diesel adds to an ever-increasing inflation rate. Some large chain stores have reportedly spent millions of Rands on diesel to ensure electricity in their stores for consumers during load shedding times.

The increased tariff charges from municipalities and Eskom have also contributed to the economic pressure South Africans are experiencing. Neil Roets, the chief executive of Debt Rescue, reportedly said recently that South African households were far too stretched and are heading towards breakdowns.

The challenges are far more significant for 55% of South Africa’s impoverished population, of which 25% experience food insecurity. The increase of fuel prices has a ripple effect on the escalating food prices. Yet, the government is still supposedly aspiring to meet the United Nation’s global goals to reduce poverty and food insecurity by 2030.

The Zero Poverty and Food Hunger goals rank first and second, respectively. The declining economy has left no class category of people unaffected. It has been reported that wages and salaries have remained the same to meet the demands of food inflation.

The middle class, too, has its woes, with increased household expenditure, coupled with increased interest rates, municipal rates and the escalating cost of food and other necessities. Some cope better than others, and understanding one’s finances is central to a person’s coping mechanism.

We need to comprehend precisely what it means to be financially literate fully. Financial literacy comprises several skills, concepts and operational knowledge. This is relevant to household expense management, how to manage and pay off debts, differentiate between necessary debt and unnecessary debt, and tax responsibilities, as well as identify what the long-term and or short-term impacts are on credit and investment products.

Operational knowledge and a continual awareness of modifications in financial banking policies and procedures are fundamental to managing one’s finances. Many young South Africans are not adequately literate in this regard and often justify expenditures based on one’s perceived income.

The concept of perceived income refers to someone who evaluates their income in their capacity to manage their lifestyles. This perception can be subjective and inaccurate, especially if one is partially financially ignorant. More than often, the arrival of sudden expenses is not a sudden expense but is often perceived to be one for many.

Good operational knowledge enables one to budget, manage and pay off debts timeously. If the perceived income is used as a fact base, one can easily make poor spending decisions, not prepare for a sound financial future and accumulate debt.

Real income is a term that describes the amount of money one has available after the amount includes inflation. The Consumer Price Index (CPI) reports the inflation index, and the actual income is then determined with this information. Many of us who have partial or minimal financial literacy tend not to consider the CPI inflation index and continue on a monthly basis with the hope that the ledger will balance. Under these pressuring times in South Africa, it is vital that we opt to improve our level of financial literacy.

One needs to be fully aware of the reality of one’s income (with room for inflation) versus an individual’s perceived income capacity. Often, people spend what they intend to earn rather than what they have earned already. To avoid bad financial decisions, we must educate ourselves and develop the needed skills to become fully financially literate.

It is recommended that financial operational knowledge and skills needs to be prioritised for our youth and that an introductory course is offered to school leavers before they enter tertiary educational institutions. This will also enable them to manage their student budgets and grant allocations effectively.

My academic scholarship days taught me financial management and the importance of budgeting. In 2004, I was afforded a full bursary to complete my first M.A qualification at two international universities, namely Albert-Ludwigs-Universität Freiburg in Germany and Jawarlal Nehru University, in New Delhi, India, over a period of two years.

The monthly allowance was inclusive of all living expenses, and accurate budgeting skills were required. I quickly had to learn the importance of budgeting and keeping to it and realising when to buy certain goods and when not to. It was only at that point that I had self-taught myself money management skills.

It is suggested that one creates a budget, pays expenses timeously, be aware of when and how much they spend, save money, check the credit report, and be conscious about investing for the future. Often, the value and importance of financial literacy are sidelined. The focus has always been to obtain an education to earn a livelihood or the development of a career and then the task of finding a job.

Having adequate financial and operational knowledge at a young age can only benefit one in later years. Without this knowledge, one can derail to bad financial decisions and unsustainable debt. The void of this knowledge has also contributed towards businesses not sustaining themselves during the global Covid-19 pandemic and the July 2021 riots that took place in KwaZulu-Natal and Gauteng provinces of South Africa. During these periods, people were retrenched from work, and many were not prepared to financially manage such an emergency adequately.

Through developing the appropriate skills, one can easily attain their goals, climb the class hierarchy and make smart financial decisions from which their children and families can benefit. Knowledge is central to financial preparation, and decisions that involve money are often major and life-changing. In a shrinking and brutal global recession, should South Africans be making big financial decisions without being holistically informed of the advantages and disadvantages of their choices?

Confidence and well-managed responsibility in finances can avoid unforeseen circumstances and fewer surprises and help to develop a beautiful and stress-free retired life. South African youth should be empowered adequately in this regard so that their livelihoods can be improved.

Sheetal Bhoola has a PhD and two Master’s degrees in the social sciences. She is a lecturer, researcher and a freelance writer. Bhoola has been the recipient of awards and academic scholarships throughout her career. Visit

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