Robo-Advice: meeting the savings needs of young South Africans

Maarten Boddeus, Figlo Specialist - Yellowtail Business Solutions.

Burdened by student debt, the spiralling cost of living and low wages, many recent university graduates and young people consider themselves lucky to be able to afford the new iPhone, let alone saving for retirement or a house. How can the industry help them to be more savvy? All is in the way the industry supports people with the right planning tools, in the right channel, for now and in the future.

According to the 2015 Old Mutual Savings and Investment Monitor, of the fully-employed surveyed Z-Gen’s, the vast majority are not saving towards their retirement. The monitor reveals that only 34% of them are saving towards their retirement via a pension or provident fund and 21% of them through a retirement annuity. Many cite affordability as an issue, the belief that they are too young to think about later life finances or they have not been introduced to savings vehicles yet.

With research pointing to the need to start saving for retirement as early as 23, the challenge is how do financial services organisations make available cost-effective and attractive retirement savings solutions to this largely underserved market? Understanding Z-Gen is a first step, the majority are hyper-connected and live comfortably in a digital world. According to Old Mutual’s research 72% of Z-Gen do as many of their transactions as possible online.

“What is clear is that there is tremendous opportunity for financial services organisations to tailor make digital solutions that meet the needs of this youthful consumer and makes financial planning more accessible,” said Maarten Boddeus, Figlo Specialist - Yellowtail Business Solutions. “These digital solutions can easily complement more traditional financial solutions already available. The need for financial planning evolves with one’s age and possible more complex financial planning matters. For the Z-Gen the search for solutions obviously starts online.”

Financial planning powered by robo-advice is one such solution, it presents the natural first step towards bringing more of the Z-Gens into formal financial savings products, helping them better prepare for their future. In South Africa this is particularly important where a culture of undersaving means fewer consumers are prepared for retirement and where the South African Reserve Bank says that South Africa has one of the worst savings rates in the world at 15.4% of GDP.

By making financial planning more accessible there is the opportunity to help shift the savings mindset. “At different stages of our lives we have different financial goals. The beauty of digital-enabled financial planning is that life goals will change and easily can be adjusted over time, a win for consumers, and an opportunity for financial services organisations to better cross-sell products,” says Boddeus. “Robo-advice enables scalable cost-effective financial planning, helping more consumers better plan for their future.”