A social experiment: the One Rand Man

Myra Rego, FAnews Journalist.

In a world of plastic money, debit orders and generous overdrafts, what would happen if we were forced to live entirely off coins? Would we feel more connected to our money? Would we spend less? Would we save more?

For this year’s National Savings Month, a 32-year-old architectural consultant from Cape Town, aptly dubbed The One Rand Man, set out to live only on R1 coins for the month of July. With his bank accounts, bank cards and debit orders frozen for the month, his first day kicked off with a delivery of a few large money bags containing his entire salary in R1 coins.

The One Rand Man was a social experiment by Sanlam with the aim of discovering how far removed we have grown from our hard cash. The project was designed to highlight the importance of savings for the long-term financial health of the nation and its individuals.

The issue at hand

Few South Africans reach their savings goal, largely through a combination of ignorance, neglect and poor discipline, yet we are constantly reminded to consult with a professional adviser as soon as we start earning an income in order to achieve our retirement goals.

Yegs Ramiah, Chief Executive Officer (CEO) of Sanlam Brand says, “the reality is that we generally spend more when we spend on a card. With people so disconnected from money these days, the implications of our spending simply are not felt. Because it is so easy to spend and to spend money we do not actually have, many South Africans are finding themselves spiralling rapidly into debt.”

"Since our national savings rate is extremely low, we believe that any insights into our money habits which may lead to increased savings, is well worth promoting," Yegs explains.

The One Rand Man’s expenses include taxes, car payments, rent, pension and medical scheme contributions, credit card debt, utilities such as water and electricity, and general spending money. Two weeks into the social experiment, the One Rand Man realised that in our modern, card-based society, we have lost connection with our money and we no longer feel the implications of our spending.

He started to notice how his lifestyle choices affected his savings patterns. He said, “too much is going towards my car. I do not know why I bought such an expensive car. I could easily have bought a car for a smaller amount and the rest could have gone to savings.”

Another large expense is his credit card debt. “This really makes you think twice about taking out a loan because of the total amount you have to pay back at the end of the day,” he explained.

A financially savvy mindset

With this in mind, it is clear that the One Rand Man learned very valuable lessons. He started paying attention to the detail behind his spending for example, by taking note of the price of items in the supermarket, something he never did before. His shift from plastic to coins has brought home the message that every single thing we do costs money.

According to Sanlam's Investments Economist, Arthur Kamp, a key learning from this experiment is the power of budgeting. Kamp says, “the One Rand Man is not saving nearly enough towards retirement. Also interesting to note that he sees his pension as an expense like rent or tax, and not as a savings that is in fact making money for him in the long-term.”

Because of retirement shortfalls and poor planning, people are being forced to extend their retirement age in an attempt to get a last cash injection before they ride off into the sunset.

“This is unfortunately a mindset shared by many young South Africans, and one that needs to be shifted to enable them to one day retire comfortably. Even very small amounts put away towards savings and retirement when you are young, make a huge difference when you are older,” continues Kamp.

“Every Rand that you spend, is an opportunity lost to allow that money to work for you by earning interest or dividends, and growing over time. Using a credit card to pay for goods and services is not money – it is someone else’s money that you have borrowed and that you have to pay back, most likely with interest. Therefore, it is crucial to start saving as young as possible.”

Achieving the end goal

It is clear that there needs to be a rethink when it comes to retirement planning in that the public needs to come to terms with realities rather than this ideal picture of retirement they have created. Whether this is a challenge that is easily achievable for advisers is a debate that will perhaps continue forever.

This would mean that advisers, as the company’s product retirement planners, would need to be able to make considerable efforts in reprogramming the way people view retirement. Some advisers argue that reprogramming the public’s approach to retirement feels like an impossible task.

However, this does not detract from the value sound financial planning offers to the industry and the role advisers play in ensuring that policyholders work towards a goal which is as close to a comfortable retirement they can get.

Advisers have the power to achieve financial prosperity for their client. But with great power comes great responsibility. The adviser, in essence, has his/her back against the wall because they have to overcome the significant challenge of rewiring the human brain to think rationally.

The only way to achieve this is to build on relationships with clients and to offer state of the art products and services which will fit their future anticipated retirement needs.