Don’t waste a recession – there are lessons to be learned

Old Mutual Savings Monitor November 2010 findings

At a press conference held to release the latest findings of their Savings Monitor, Old Mutual sounded an optimistic note that the economy is o­n the slow road to recovery after the recent recession, with interest rates at their lowest levels since 1974 and inflation falling comfortably within the government’s stated target range of 3 – 6%.

This should mean more income at individual’s disposal. It is an ideal time for time for people to focus o­n the necessity of saving for their future, as best they can, and to revisit their existing financial plans and apply some of the lessons taught by the financial crisis about protecting and planning for their financial future.

The Old Mutual Savings Monitor research indicates that South Africans have indeed felt the impact of the recession and it is apparent that attitudes have started to show signs of responding positively towards savings and planning for the future.

But most of us are still saving far too little and are under-prepared for what lies ahead, with many of us needing to support our parents in old age, to say nothing of providing for our own retirement and the education of our children.

With many governments around the world needing to focus heavily o­n reducing budget shortfalls and containing outstanding debt levels, an early casualty of fiscal tightening has been social security – with cutbacks to pension benefits and extended retirement ages.

According to Rian Le Roux, Old Mutual Investment Group (OMIGSA) chief economist, “national budgets are under heavy pressure, and people worldwide will have to accept that governments will not be able to lend much support during their retirement years.”

Further strain is put o­n retirement savings by poorly performing markets, early retirement and low savings, which reveal that many people are inadequately provided for, and their savings efforts will have to treble or quadruple in the effort to put sufficient money aside for retirement to avoid becoming a burden o­n the state, or their children.

Lynette Nicholson, Head of Research at Old Mutual points out that people who plan ahead, even if they have debt, are managing to service debt better, and save more, compared with those who do not plan.

“Improving our nation’s understanding of the importance of money management and long term planning is crucial to fostering a positive savings culture. The key challenges are in broadening the reach of financial advisers, and giving more people access to advice, thereby enabling financial educators and advisers to share their knowledge and expertise o­n money management and ultimately empower people to make informed financial decisions about their futures,” reflects Nicholson.

One of the obvious solutions to helping society become more sustainable is to provide people with the knowledge and financial education that will empower them to make educated and astute financial decisions. If people understand the need for financial planning and what savings and investment vehicles are available to assist them in achieving their financial goals, the nation’s generational poverty cycle will start to break down.

Old Mutual’s research shows that poor financial planning is at the root of poor money management and a holistic approach to savings - using a variety of savings vehicles and not o­nly servicing debt - will help us become better savers.

Importantly the Old Mutual Savings Monitor has found that the awareness of the need to save does not necessarily influence positive savings behaviour, nor does the fear of not having enough savings for a rainy day. But what does drive positive savings behaviour is o­ne’s attitude to organisation, planning and knowledge seeking.

We have all been taught to pay off debt first, and then begin saving, but the latest research findings suggest a subtle shift is needed. We not o­nly need to pay off debt – as a priority – but must also remember that however debt-free we are going into retirement, there will still be a need for income in order to survive. And this is where long term savings vehicles come to the rescue.

So what makes a good saver?

The Old Mutual Savings Monitor reveals that Organisers - as opposed to Procrastinators - are better prepared for the future, because they are active in seeking knowledge, planning and organising. The research further reveals that Organisers are found in both higher and lower income brackets and that they are not necessarily linked to higher LSM tiers.

Organisers still manage to save, while recognising the need for debt reduction.

Organisers plan ahead and are more focused o­n the future in respect of financial planning and take proactive steps to address their savings needs. They also stick to their financial plan to ensure that they acquire wealth and financial freedom. Organisers seek out the best financial advice by working with the experts to help them manage their finances so that they can make informed decisions when it comes to exercising their best savings options.

“Our interventions should be geared towards creating a positive outlook to planning ahead and steering people to seek expert advice in order to help them secure their future financial independence. A clear vision, backed by definite financial plans, will enable South Africans to do great things with their hard earned money, and enable them to look forward to the future with confidence and financial peace of mind” concludes Nicholson.