By: Fikile Mbhokota
In South Africa’s consumption-focused culture, where many struggle to make it to month-end and stokvels tend to cash out come December, there are perpetuating cycles of present bias. Preoccupation with the present leaves little room to invest in the future. Shifting to a longer-term money mindset will require a strong emphasis on financial education, literacy, learning, and of course, a change in mindset.
The field of behavioural science defines present bias as the tendency to skew decision-making toward the present situation rather than the future. It’s the inclination to favour immediate rewards over future benefits, which can often lead to poor financial planning and decision-making. This behaviour is partly driven by a desire for instant gratification.
For those who have created opportunity after experiencing prolonged financial hardship, it is important to find a balance between accessing luxuries and creating lasting wealth through investment. Buying an expensive car or splurging on non-essential items can provide a temporary sense of fulfilment but can result in long-term financial instability.
Moving Beyond Present Bias
It Starts in Childhood
To counteract present bias, it is essential to focus on long-term financial planning from a young age. Integrating financial education into school curriculums and encouraging discussions about money management at home can lay a solid foundation for future financial decisions. Children who grow up understanding the importance of long-term investments and the power of compound interest are more likely to adopt healthier financial habits as adults.
Children learn through observation, and they see us spending, but don’t necessarily observe us saving or investing behind the scenes. It’s critical to speak through these behaviours. For example, my children love using mouthwash; they were going through a bottle a week until I explained to them that mama cannot afford a new bottle each week, so they must make it last for at least a month. Teaching kids that money can be a finite resource if not well-managed – and when it’s finished, it’s finished – is a critical life lesson and supports living within one’s means. It’s important for them to understand that one of the ways to grow the money they have is through saving and investment.
Talking openly about investing starts to shift mindsets to longer-term thinking during formative childhood years, when ‘money scripts’ are made. We’re not just saving for December; we’re saving for 20 years’ time.
Later in Life
Dr Mavis Mazhura – author, international behavioural science, and performance specialist – suggests training delayed gratification in children’s formative years. She also advocates for people’s exposure to money cycles of repairing (repairing ‘unhealthy’ money relationships), earning, managing, investing, and protecting one’s wealth, along with robust financial planning and goals.
Financial literacy programmes and investment clubs can provide valuable resources and support to encourage adults to adopt a long-term perspective on their financial goals. I joined an investment club at a young age, where we’d take turns nominating an exchange-traded fund (ETF) each week. Having the courage to have these conversations with friends and family can make a massive difference.
We don’t talk enough about equal access to wealth creation in this country. If you’ve come from a family in a cycle of present bias, it’s hard to break this mindset. There are many cases where people get access to money, and then don’t know how to manage it. Again, that’s where access to financial literacy, the right advice, and tools can change individuals’ stories for the better.
Just Start
For individuals living from paycheque to paycheque, it can be difficult to think beyond immediate financial pressures. In such cases, start saving and investing small amounts to form a sustainable habit over the long term. As their financial situation improves, those savings and investment contributions should increase as well. People only really start to appreciate the magic of compound interest when they experience cumulative returns for themselves. With SatrixNOW, you can invest as little as R1, breaking the barriers to investing.
Adding to this, Dr Mazhura says that people in survival mode tend to shy away from behaviours like learning, goal setting, and seeking financial advice, behaviours which if adopted, could lead to longer-term mindsets. In this survival mode, self-awareness is eroded as anxiety creates urgency, prompting immediate consumption, with little capacity for delayed gratification.
Breaking this cycle takes the psychological capacity to integrate positive financial behaviours like investing, which requires emotion management. Shifting to longer-term strategies also takes education and awareness, exposure to success stories, and taking care of the easy ‘wins’ by automating savings, for example.
Surmounting Cycles of Debt
Another critical aspect of overcoming present bias is addressing the high levels of debt many individuals face. High-interest debt can be a significant barrier to saving and investing. Educating consumers about their rights and options, such as negotiating lower interest rates and consolidating debt, can help alleviate some of their financial burdens. People need to appreciate the power they hold as consumers and assert this.
Another factor contributing to present bias is the proliferation of products and schemes promising quick returns. These often prey on individuals' desires for immediate gains. Promoting a culture of informed and cautious investing – where individuals understand that sustainable wealth-building requires time and patience – is essential. As is instilling the custom of living within one’s means. Cultures of consumption can make room for ‘Mashonisas’ (a loan-provider) and spiralling cycles of high-interest debt.
By fostering financial literacy, encouraging long-term goal setting, and providing practical tools for managing finances, we can help individuals break cycles of present bias and invest in long-term wealth accumulation, not only for themselves but for the next generation. Empowering people to make informed financial decisions benefits them personally and contributes to the broader economic health of our society. It is a collective effort that requires action from individuals, communities, and policymakers alike to create a financially resilient future.
* Mbhokota is the CEO of Satrix.
PERSONAL FINANCE