There are a variety of savings schemes for lower income earners in South Africa today, both formal and informal.
“There is a strong need for South Africans to change their financial behaviour,” says Kabelo Makeke, Head of Inclusive Banking at Standard Bank. “We are among the worst savers in the world. Many South Africans take out loans or they over extend their credit which puts them into debt. And debt is very difficult to get out of. Even if you earn a low income, you do need to save a percentage of it each month.”
July is National Savings Month in South Africa, an initiative started over a decade ago by the South African Savings Institute (SASI) in conjunction with the former Finance Minister, Trevor Manuel.
“If you’re not already saving, then today might be the time to consider changing this mind-set and making a turning point in your savings plan.”
According to a recent report, 12.5 million South Africans are showing financial difficulties, 58% of adults claim that they are currently not saving and people have a high expectation for the state to provide for them, particularly amongst lower income earners. (FinScope SA 2013 Consumer Survey).
The latest Finmark report, entitled Understanding the challenges and opportunities in promoting savings among low income individuals in Lesotho, Malawi and South Africa (November 2013), highlights very similar issues. It shows that South Africa has the lowest level of savings across the three study countries, despite having higher financial inclusion. The report claims that a lack of uptake of savings may possibly be due to a culture of consumerism, a lack of discipline, and the perception that saving is not part of South African culture.
“We have to turn this situation around,” says Mr Makeke. “People need to take responsibility for their own financial situation and consider saving if they are earning an income, no matter how low.”
Saving is all about discipline. The first step towards saving is that people need to spend less than they earn.
“You have to consciously adjust your lifestyle so that you can redirect some of your income into a savings scheme,” says Mr Makeke.
So where should you start?
Start by looking at the different types of savings offerings to understand what would work best for you.
According to the Finmark report, South Africans use a variety of savings providers and financial solutions to meet their financial needs. Commercial banks and stokvels are the most popular.
The Finmark report notes that Stokvels remain a very popular savings mechanism and may be collectively strengthened through their national association (NASASA) which has new leadership and is exploring pooling excess liquidity of groups, thus enhancing their collective bargaining power.
“Salary affects how and where people save, with higher income individuals predominantly using formal financial institutions and those on a lower income mainly using informal financial services”, according to the report.
The FinScope SA 2013 Consumer Survey lists the different types of savings products on offer as follows:
• Long term formal savings include education policy, investment/savings policy, endowment policy and off-shore investments, provident fund, retirement annuity and pension fund.
• Medium term formal products: unit trusts, stokvel account at a bank, share on the stock exchange, other shares such as Sasol shares and government bonds.
• Short-term formal savings products: deposit account, call account and money market account.
• Informal savings include: stokvel/umgalelo and investment/savings club.
To work out which of these options are best suited for your needs, ask yourself the following questions:
• What is the most I can afford to save every month?
• What am I saving up for (wedding, lobola, education, old age)?
• Where do I feel most comfortable putting my savings?
• Where will my savings be safest?
• Who will give me the highest returns / interest for my money?
“The next step is to choose your savings vehicle and start saving,” says Mr Makeke. “With this array of savings options, there is no excuse not to get started. One of the options offered by Standard Bank if you only have a small amount to save each month is AssessSave.”
AccessSave is about helping people achieve goals, like uniforms and school fees for your kids, or a new fridge or microwave. Getting what you want becomes easy when saving becomes a habit. It also helps you avoid the stress of unexpected expenses coming up, like household repairs or your child needing to go on a school trip, and gives you something to fall back on. By depositing regularly into your AccessSave account, your money will grow steadily and the bank will add interest to help you on your way.
“You choose the amount and the time period – you set your own savings target. For example, you can put away R100 every month for two years. By the end of two years you will have a lump sum that you can then invest into another savings account that will give you a higher rate of interest, ensuring that your money grows faster.
Over and above the footprint of branches and ATMs across the country, Standard Bank AccessPoints can also be found in over 4000 spaza shops nationwide. You can use the normal payment systems in these shops to put money into your account and check your balance for free.
“This is a great way to start, and will get you into the habit of regular savings,” continues Mr Makeke.
More and more people are coming into formal banking each year. This is being helped by the introduction of bank cards for claiming government social grants. “Banks are becoming much more transparent about their fee structures,” says Mr Makeke. “At Standard Bank we have been listening to our customers and we are continually developing innovative new products for low income earners that meet their needs in the most cost-effective manner.”
Of people who do save, the Finmark report found that most people save for a particular project (e.g. Christmas groceries; farm inputs; school fees). These savings are, however, often diverted to meet emergencies, resulting in longer time periods to save for the project than intended.
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