242 Journal of Economics and Behavioral Studies Vol. 6, No. 3, pp. 242-250, Mar 2014 (ISSN: 2220-6140) Analysis of the Level of Financial Literacy among South African Undergraduate Students * Emmanuel K. Oseifuah, Agyapong B. Gyekye University of Venda, South Africa * oseifuah@univen.ac.za Abstract : The purpose of the study was twofold: to examine the relationship between financial literacy and demographic and other socioeconomic factors of a sample of undergraduate students; and to evaluate how undergraduate students’ financial knowledge correlate with their attitude and behavior towards personal finance issues. A structured questionnaire was used to collect data and logistic regression and Chi-Square statistical procedures were employed to analyse the data using the Statistical Package for Social Scientists (SPSS) software. Overall, this pilot study reveals that Bachelor of Commerce(Accounting) students at the University of Venda are not as financially literate as expected, confirming the findings of similar studies conducted on South African university students (Kotzè and Smidt, 2008). There is therefore the necessity to review the academic curriculum in the Bachelor of Commerce programme to include money management course. Furthermore, with more South African university students likely to depend on bank loans to finance their education, it is recommended that financial literacy be made a compulsory course in all undergraduate programmes in South African universities. Keywords : Bachelor of Commerce, Financial Literacy, South Africa, Undergraduates, University of Venda 1. Introduction Financial literacy is a crucial factor affecting individuals, households, financial institutions and the broader economy. Financial illiteracy has been cited by many commentators as a major reason for falling saving rates (Hilgert, Hogarth and Beverly, 2003), mounting consumer debt (Stango and Zinman, 2007), inadequate planning for retirement (Lusardi and Mitchell, 2006, 2007a), basis for divorce, poor mental health and a variety of other negative and unhappy experiences (Kinnunen and Pulkkinen, 1998; Cleek and Pearson, 1995), the cause of emotional stress, depression and lower self-esteem (Wolcott and Hughes, 1999). Researchers generally agree that financial knowledge appears to be directly correlated with self-beneficial financial behaviour (Hilgert, Hogarth, & Beverly, 2003). For example, Perry and Morris (2005) found that financially literate individuals are more inclined to budget, save and plan for the future. Chang and Hanna (1992) reported that individuals with high levels of financial knowledge make more efficient decisions when compared with those possessing low levels of financial literacy. Finally, Kinsey and McAlister (1981) found a positive association between financial literacy and level of income and education. These indicators have prompted governments worldwide including Australia, Japan, Canada, US, and the UK to raise the level of financial literacy through purposive educational programmes. Recent researches have shown that financial literacy levels in developing countries are quite low. For example, DFID (2008) (cited in Njuguna, 2011) study reveals that only half of the adult population knew how to use financial products. The study also found that in 7 African countries about a third (29%) of adults had a bank account and that approximately 50% used no financial products whatsoever. In South Africa, several financial literacy initiatives by government, private sector and Non-governmental organizations (e.g. Banking on our future (BOOF); Financial Services Board; VISA, Old Mutual, South African Insurance Association; and Life Officers Association, among others) have been implemented with the primary objective of educating and empowering the populace to become responsible and competent market consumers. However, empirical studies have revealed that the level of financial literacy is alarmingly low, especially among the adult population (FinMark Trust, 2004; Van Nieuwenhuyzen, 2009). For example, Godfrey (2006) found that nearly 60% of respondents do not understand the term ‘interest’. Also, the South Africa Savings Institute (SASI, 2010) acknowledged in its Varsity Savings Campaign 2010 programme that many graduates go into the labour market with little understanding of how to manage their finances. Consequently, they squander their incomes as soon as they receive their first earnings on ostentatious goods and fall into debt due to failure to save or budget for their expenses. In addition, majority fail to save or budget for their money even though they intuitively know that this could improve their financial well-being. As a result, they tend to be unprepared and are ill-equipped to properly manage their salaries or realize the importance of making additional provision for their retirement during their working years.