Taking action to make ends meet
South African households are increasingly cutting back on living expenses as they grapple with their stressful financial positions. This is one of the findings from the 2016 Old Mutual Savings & Investment Monitor, which tracks the shifts in the financial attitudes and behaviour of South Africa’s working metropolitan population.
“The findings also reveal that confidence in the South African economy has plummeted to an all-time low of 31% - a considerable decrease from 55% in 2015 - with two thirds of respondents describing their level of financial stress as overwhelming or high,” says Lynette Nicholson, research manager at Old Mutual.
Nicholson says that these findings reflect the dire state of the broader economy, with GDP growth forecasts now around 0.5% for 2016.
Relying on debt
Nicholson points out that this widespread sense of financial distress is further highlighted by the number of individuals relying on loans, especially from friends and family, with a noticeable increase in the proportion of household income spent on servicing debt – jumping from 12% in 2015 to 16% in 2016.
“The 2016 research shows a spike in personal loans across all income groups, with the number of loans taken from financial institutions (21%), friends or relatives (15%) and micro lenders (8%) all on the increase since 2015 when levels were 16%, 10% and 4% respectively.”
Further worries
Another worrying indicator is the finding that fewer homeowners are paying additional lump sums into their bonds.
“Individuals are instead sticking to the minimum payments each month, essentially maximising their future interest owed. When it comes to servicing credit card debt, only 13% of South Africans pay their credit card off in full at the end of the month, with an increasing number of card holders only paying the minimum instalments,” said Nicholson.
The messages of savings past
With all of these troubling indicators in the market, Rian le Roux – Chief Economist at Old Mutual – says that it is worthwhile to revisit some past messages regarding the savings situation in the country.
“South Africa, as a nation, saves too little. This will eventually cause pain somewhere, and this pain is likely to be severe. It leads to weak economic growth which will in turn force companies to externalise their savings and look for investment in other markets that are seen as key growth areas,” says Le Roux. Further, South Africa’s poor saving rate is pressurising government’s fiscal situation and it is worsening the country’s socio-economic unrest.
Rebuilding the bridge
Le Roux adds that while there are a lot of challenges in the South African market that are beyond our control, there are things that we can do that will make a meaningful, positive difference. Failing to make the correct policy interventions will make matters worse, making the wrong policy interventions will risk a full blown crisis.
“What needs to be done? There needs to be major strides made towards addressing the deep distrust that exists between government, labour and business. Government needs to create greater policy certainty, both on a macro and sectoral level. Additionally, the policy makers need to speed up infrastructure investment and aggressively address underperforming public institutions. Government needs to finish the power stations!” exclaimed Le Roux.
Take control
While there are many in the country who simply cannot save, for various reasons, there are people in the country who can save. Le Roux says that these people need to take control of their future.
People should start saving as early as possible when it comes to investments; time and discipline are investor’s best friends. If one is saving for children, it should be done as early as from the birth of the child and it should be contractual with annual increases.
“The value of the investment is the only variable that an investor can potentially control. For most people, this is very hard as it requires spending discipline. Despite this, investors need to draw up a budget and stick to it,” says Le Roux.
He adds that children learn spending habits from their parents. Parents need to teach their children about the advantages of compounded returns and the value of proper budgeting.
Editor’s Thoughts:
This comes down to the important need to increase financial education in the country, a need that associations and product providers have been promoting for a long time. Above all of the measures discussed above perhaps the greatest step forward to include financial education in school curriculums. Benjamin Franklin once said that an investment in knowledge always pays the best interest. How appropriate are these words in South Africa today. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.
