Many pennies for your thoughts
Money down the toilet
Two years after I bought my first cellphone, I dropped it in the toilet. You might think this incredibly bad luck but apparently 75% of cellphone owners use their phone in the toilet and 19% of users actually end up dropping their phone in the toilet. 1
But I thought I would be just fine. I had fallen lock, stock and barrel for the pitch that, now that I had a smartphone, I would need cellphone insurance. After all, this would cover me for theft, loss, physical damage and even damage from “liquids”. What could go wrong?
It hadn’t even occurred to me to check if perhaps I was somehow already covered – by a home contents policy or some other pre-existing policy. It also hadn’t occurred to me to read the fine print – the print that explained that I wouldn’t be covered unless my South African service provider’s SIM card was in the phone. And here I was, in an American toilet with a temporary American SIM card in my phone. It wasn’t just the cellphone that went down that hole – it was close to R18 000 in both replacement value and wasted insurance coverage.
Should I have made better decisions here? It bothered me that the world of “financial advice” didn’t appear to extend to such mundane issues as: Is cellphone insurance really worth it? Or, do I really need full comprehensive auto insurance? Or, which is more cost effective: leaving my emergency savings in a money market account with a bank or investing it with a money market unit trust? Google those questions and the advice offered is even more confusing.
The world of financial advice should help you manage these kinds of financial trade-off decisions.
What makes this difficult is the way that financial services are siloed. For example: would I not be better off if I didn’t buy that cellphone insurance package and only bought auto insurance that covered third-part liability – and then put those savings into a longer dated money market fund? Just think. With that kind of emergency stash, I could actually “self-insure” myself against the kind of little life crises that were likely to befall me without the risk of falling foul of “fine print” exclusions. But where do these basic financial trade-off decisions actually get taught to consumers? When you have to manage with a very thin wallet, these are the kind of decisions that matter most.
Fast forward to last week.
I sit on the research committee for Inseta’s training and skills development. The topic on the table is: How do we need to evolve the training and skills development for employees in the insurance sector so that they are relevant for the industry’s future?
Because savings vehicles often use insurance licences to pool funds, the pension funds, asset managers and financial advisers are also catered for by Inseta. Intriguingly, the banking industry is covered by a totally different seta – Bankseta. So presumably, those professionals require a different sort of training.
And therein lies the rub. Because, when you sit down and map out the whole world of financial touchpoints that an individual faces through their life, these are actually all part of one continuum of considerations. Here is essentially how the continuum works:
The starting point is an income, whether from a job, from a grant or inheritance, or from an investment. The question every individual (and their family) faces is, how can I best deploy this so I get the greatest “bang for buck” from that income over time? On one side of the trade-off decision is how to use that income to protect the family from any future financial shocks. On the other side is a consideration of how to deploy that income so that it can increase one’s financial mobility by investing to either create wealth or self-improvement. These are not trivial trade-off decisions. But they can be grappled with if one focuses on weighing out: