Moonstone: The drivers of a savings culture

“Clamour for lower rates as inflation tumbles” reads the headline in Business Day this morning.

I am not an economist, and the checks and balances to keep the economy healthy are better left to those that know how to do it.

My concern lies with those folk who did not jump on the band wagon when spending money borrowed from very willing and able lenders became the national sport, almost like the feeding frenzy one sees at this time of year during the sardine run off the KZN coast.

Typically retired with their nest egg conservatively invested for six months in a bank account, and renewed at the end of the term, these folk did not experience the thrill of the big spend, nor the chill when the economic downturn started biting those who over indulged.

They now have to draw their belts even tighter as interest rates fall, lowering their income while the gluttons can breathe a little easier.

I actually started writing this article in response to a comment from a colleague about the loss of financial services providers, and the impact thereof on the already negative national savings rate.

In my research I came across the website of the South African Savings Institute, where I picked up this analogy:

The effect of a low savings rate on the economy as a whole can be interpreted in exactly the same way at household level.

"If a household is not saving enough to fund its needs, whether it is consumption or investment, it will have to borrow. The more you borrow, the less creditworthy you become and the higher the interest rate you have to pay. Exactly the same happens at the country level. If South Africa relies on foreign savings it will require that we justify the decision of foreign investors to invest their money in this country. Therefore, for South Africa to be able to attract capital inflows we have to be able to offer offshore investors a good return and that means a higher interest rate and a higher cost to this country to borrow the capital. The higher cost of capital results in higher costs of production, making the country less competitive. However, if the cost at which South Africa borrows is lower than the rate of return that it enjoys, then it can be beneficial. Borrowing is not bad in its own right; it is when it is unsustainable that it creates serious problems." (Elias Masilela , SASI)

I am heading towards an entirely different point, but cannot help but digress briefly to take a side-swipe at the “you-owe-me” attitude that is prevalent in the country and is currently being graphically illustrated by striking government employees, many of whom are probably expending more energy during the few days of the strike than they do at work during the whole year.

Without going down Sympathy Street, many of those conservative savers mentioned above became exactly that because they experienced enough hardship to realise the importance of taking preventative measures.

The rest will probably only learn when they experience what Joni Mitchell referred to when she sang: “Don’t it always seem to be that you don’t know what you’ve got till it’s gone.”

I see that the FSB is asking for tenders from service providers who can supply training material for educational facilities to promote financial literacy to the masses. This drive deserves our whole-hearted support.

And finally brings me to my point:

Possibly the biggest driver of savings and investments is the financial advisor who creates the awareness in Joe Public that provision for retirement, death, ill-health and unforeseen calamities is not a nice-to-have. Yet, this animal is currently on the list of threatened species, and does not seem to enjoy the same concern that baby seals et al engender.

It does seem that many current advisors are contemplating getting out of the business, and one can understand their motives, sad as it is. The need for them to stay on, and share their knowledge and expertise, is an extremely important part of the drive to turn perceptions around.

In the article below we discuss some random thoughts on alternatives for advisors wishing to cope with current demands.