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Less than 6% of middle-income customers have sufficient emergency savings on hand

03 May 2021 FNB

Why it’s important to have emergency savings, and how you can do it

Having savings on hand is one of the most effective ways of building financial resilience, to be able to cope with any unexpected event or circumstance that life throws our way. Unfortunately, as Covid-19 and the national lockdown revealed, very few South Africans have emergency savings on hand, which is why many struggled to make ends meet when the pandemic struck and had to make do with lower or a loss in income for a few months.

According to Raj Makanjee, Retail CEO at FNB, accepted best practice in becoming financially resilient is having emergency savings available that is equal to at least three months’ worth of income or take-home pay. “Having a three-month financial buffer can be a lifesaver if an unexpected situation arises, like a retrenchment or temporary loss of income,” Makanjee says, “because those savings allow us to get through the difficult times or cover unexpected expenses without having to take on additional debt just to cover our monthly living expenses. These unexpected expenses could include a burst geyser, new tyres for the car or medical expenses.”

However, according to Makanjee, very few South Africans have enough, or any, emergency savings – a fact that was highlighted by research done by FNB amongst its middle-income customers who earn between R15 000 and R42 000 per month. “Our investigation revealed that more than 80% of middle income customers have no or limited savings that they are able to access within 7 days in case of an emergency. Around 27% have no emergency savings, and 56% have savings that is less than one week’s worth of take home pay,” he points out. The research looked at all money that customers have available across transact and savings accounts as well as prepayments on access facilities like credit cards or home loans where they can access within 7 days. From the FNB internal research, less than 6% of the bank’s middle-income customers have emergency savings that would see them through a loss of regular income for three months or longer.

Doret Jooste, CEO of Retail Money Management at FNB says, “Comparing customers with the same level of income but different savings levels, we found that customers with low or no savings tend to be spending more on discretionary spend categories like travel, holiday accommodation and liquor. The comparison also revealed that lower savers tend to spend more on servicing unsecured debt, like retail loans and credit cards, than customers who are saving more. This shows that rather than income determining savings levels, the everyday decisions we make on spending or how much debt we take have a big influence on our savings levels or ability to be financial resillient.

How can we help?

Jooste suggests that the first step towards building up an emergency savings balance is to recognise that it can take some time and that patience is key. “It’s easy to get overwhelmed by looking at how much money we need to save up, and because of that we might never get started,” she explains, “If
you’re starting out, don’t focus on the three months’ worth of income needed – just aim for half a month’s income or take-home pay as a starting goal. Then, decide how much you’re going to put towards this savings goal every month and save it as soon as you get your salary. Starting with putting R50 or R100 towards your savings goal is a good way to get going as this money, will grow over time and it is always better to start today than delaying it until ‘one day’.

A way in which you can find the balance between day-to-day living costs, paying off debt and saving is to identify where you can free up cash in your spending. This is where the importance of a budget comes in and why we have launched - the nav»Money functionality and tools on the FNB App. These tools assist our customers by automatically categorising their spending, giving them the ability to set up limits on different spend categories and set up notifications to alert them throughout the month when they are close to reaching a spending limit to keep track of their spending in an easy way.”

Jooste notes that “Other practical ways for FNB customers to free up cash includes earning and spending eBucks at some of our retail partners like Checkers, Engen and Clicks when purchasing groceries, fuel, and personal goods. FNB customers can also earn eBucks every month on their FNB Connect spend plus get great deals on data and voice minutes. Banking smartly by scheduling your debit orders to be close to your salary deposit date to avoid unnecessary fees from bounced debit orders will also help you save. Lastly, taking control of your debt by consolidating unsecured debt into one loan with one monthly account fee and a potentially lower, interest rate, can also help you free up cash.

Given that low savers tend to have higher debt, it is important to balance this freed up money between paying off debt and saving. “For example, if you’ve freed up R300, try routing R200 of this to paying off your debt sooner while starting a savings account with the remaining R100 and still sticking to your budget.”

And Jooste recommends automating your savings as an excellent way of staying in control of your savings over time. “Our customers who open a FNB savings or cash investments account and then immediately set up an automated scheduled transfer or recurring payment into those accounts using our Savings Goals feature, are more likely to stick to their savings goal and enjoy the biggest saving success in the long term,” she says,” and most of them point out that by automating their savings, they soon don’t even notice the money leaving their transactional accounts every month. It’s also satisfying and rewarding to see your savings growing closer to your savings goal.”

“So, while building up enough emergency savings may seem difficult initially, it can be possible to do,” Jooste concludes, “and the value of having that financial buffer available when we need it tomorrow, far outweighs the small changes we may need to make, to achieve it today.”

 

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