• December 3rd, 2020

Prioritising financial products



Iyaloo Ailonga

The Financial Literacy Initiative (FLI) is a national platform to enhance financial education for individuals and micro-, small- and medium-sized enterprises.

Everyone defines the type of lifestyle to follow and this can be influenced by several factors stemming from education, family background, finances, values and goals in life, to mention a few. These factors might lead to what can be afforded, perceived as necessary and important and thereby one chooses to what to implement in terms of identified priorities.

The reference made hereto is financial products that are offered by the financial sector. The financial sector is a section of the economy made up of businesses and institutions that provide financial services to customers. This sector comprises an expansive range of industries including banks, investment companies, insurance companies, and real estate firms. The sector advances loans to businesses for expansion, grants mortgages to homeowners, and issues insurance policies to protect people, companies, and their assets. It also helps build up savings for retirement and employs a number of people. Amongst the mentioned products, at times, most people are not aware, nor fully comprehend the importance and benefits thereof.
Considering the importance of the aforementioned financial products (mortgage, insurance policies, retirement annuity, savings and investment), the most popular are mortgage and insurance policies while the rest remain in the background or non-existent for some.
According to the National Financial Sector Strategy 2011-2021, there is limited access to financial services and lack of financial literacy amongst consumers. These are some of the areas that called for a reform to inspire and motivate non-banking consumers towards financial inclusivity.
How to prioritise financial products: 

Step 1: Identify financial goals 
As a consumer, you are expected to identify what you aspire to achieve. This goal is best written rather than kept at the back of the brain. An example of a financial goal is to save for retirement.

Step 2: Estimate the budget
At this stage, the consumer is expected to find out the possible cost for the goal identified.
Sometimes the cost is not specific however, it can be estimated based on the market price. It can further be noted that, with the example in discussion, the cost would be the monthly contribution towards the expected future value.

Step 3: Time frame
Time frame refers to the duration it takes to yield the financial goal. How many years, months, weeks and or days? Time frame can be short-term or long-term. Each goal defines the time frame to realisation, which can be one year, five years or ten years etc. 
The saving to retirement time frame is affected by the age of the prospect retirement annuity holder and the expected retirement age which can be 55 or 60. That means if the consumer is twenty-five-year-old, then the retirement plan would be for thirty years and thirty-five years if retiring at 55 years or 60 years respectively.

Step 4: Defining benefits
Defining the benefits refers to identifying the advantages that the goal brings to the recipient. There are definite expectations of any spending to be done hence listing or narrating them in writing. To define the benefits of the example given would be access to finance during retirement for personal use/ start a business and to reach the identified expectations.
Step 5:  Cost-benefit analysis
During this step, a consideration of step 2 and 4 is put into the equation. This is to compare the cost versus the benefits to be derived from the goal. Further, in a retirement case study, one would compare the expected maturity value to be paid against the monthly contribution.

Step 6: Implement/postpone/avoid 
After proper scrutiny through step 5, this is when to decide if to go ahead with the financial goal, postpone or avoid it. Further, during this step one decides on which goals to prioritize amongst others.

Step 7: Review the benefits
After implementation, it is relevant to review the goal versus the benefits so that amendment can be done if it is necessary. The review step considers many factors such as inflation that might reduce the future value of the policy (in terms of policies that have future value), the relevance, and any other factor depending on the specific financial product.

After all, there are factors to consider before signing up for these financial products. These can be affordability, financial products terms and conditions, reliability of the institution and so on. 
There are a stereotype and misinterpretation of the expected users of these products, they are open to all qualifying and interested consumers. The drive is that we should learn more about the available products and know institutions offering them so that comparisons can be made. The advocacy is for you and I to be able to participate in this sector, which leads to sector growth and ultimately grows the national economy.
In conclusion, if you follow these steps, you should be able to prioritise your financial products based on your needs for desired benefits. Prioritising your needs is another step into maintaining financial health, which steers a stress-free life.

*Iyaloo Ailonga is the Chief Economist at the Financial Literacy Initiative (FLI)
 


Staff Reporter
2020-11-05 14:24:02 | 27 days ago

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