BANKERS Association of Zambia chief executive officer Leonard Mwanza says there is need for enhanced financial literacy as the nation contemplates partial pension withdrawals, arguing that beneficiaries should be educated on the consequences of doing that.

In an interview, Thursday, Mwanza said enhanced financial literacy would help beneficiaries get ready for what would come so that they could make informed choices.

“So all these reforms they should look at ‘are people really ready to manage lump sum payments’? What will happen for those that may squander their money in their end life? But then there are those that have a mindset of investment. Those perhaps could have an advantage to say ‘I have already started something, I feel this can give me a more meaningful income even in my retirement, let me spend this money so that this money can look after me when that time comes in the future’. So we need to increase the level of financial literacy so that people avoid looking at it like it is an entitlement and then ends there,” Mwanza said.

“It is the same thing when people borrow and at the point of borrowing most people’s mindset is that it is an entitlement. When they start paying, they start seeing that it is painful, it reduces their monthly income. So in that process, that realisation changes their perception of money which they might have borrowed. Remember when you are borrowing you are all smiles. The first one week, two weeks when money goes then next time you are now paying, the mindset changes, people go into stress if you don’t plan well. So it is about improving financial literacy so that people are ready for what is coming and they make informed choices.”

Mwanza said if not adequately informed, people might end up drawing money for non-profitable projects.

“I do believe that whatever is being proposed gives an opportunity for an individual to make a choice. They have to make a choice whether they need to draw down partially the accumulated savings in a pension scheme or they would maintain it so that they can live on an annuity. An annuity is basically another way of saying I will be getting a small salary at the point of my retirement up to a point until I die,” he said.

“We might end up people making impulse decisions to solve problems that are really a crisis in nature. Because I am over-indebted, let me cash out to remove my indebtedness. Now that is solving short time problems and postponing the longer terms problems. So I hope as people debate those are things that need to be put in motion in terms of how do we ensure that people are given the right information, the right financial literacy. They need to be trained, they should be educated on the options available, the consequences they will go into, how it may impact eventually their livelihoods in their retirement. So those are the issues people need to look at.”

And Mwanza said people’s behaviour towards money was different hence the need to help them build passive incomes.

“Focusing on what is happening, the issue of pension reform, I think it ponders on how are people living their work life, how are people planning for their future? Do people look at it that it is their personal responsibility to prepare for tomorrow or they have left that to someone? It is extremely dangerous for anyone to say ‘I am going to work, someone will take care of my needs when I am retired’. I think if we can start that process of helping people to build investment, helping them to build passive incomes over their working lives, it will help them to even retire in a more peaceful way. It could also help them to basically ensure that as they are retiring they retire in dignity,” he said.

“So if you are going to say partial access to the pension scheme, if you are not ready to create a passive income you are going to create problems for people because normally people’s behaviour is different from each person. There will be those people who will spend all the money and that will be it. But those with a mindset of investing, saving over their lifetime, they can be in a better position to plan of what they want to do with their money and probably use it in a more beneficial way.”

He advised people to uphold a good saving culture to ensure a decent living after their retirement.

“You work to receive money but you must invest it so that that money can work for you at a certain point in life. That is why we wake up in the morning to go and work, we want to improve our lives. But above all, we want at the end of our life cycle we should reach a point where we would have said I worked, I made the right decisions now I am ready to sit and allow what I invested to take care of my needs, to buy the food, take to care of your health needs. It can happen if you plan well, but if you don’t plan well it becomes a problem,” said Mwanza.