South Africa's savings shortage - Leaves SA's household heavily exposed in tough economic times

In good economic times, a lack of savings can continue for years without being a problem. But in tough economic times such as the present, the myriad of ways in which South Africa’s chronic household savings shortage bites becomes glaringly obvious. The return of home loan deposit requirements may have unintentionally exposed this weakness.

A low rate of household saving has been a characteristic of South Africa’s economy over the current decade, but until very recently this has not been too troublesome. However, it made us as a country and as individuals vulnerable to economic shocks, and a recent global economic shock not necessarily of our own making has recently hit us. The macroeconomist’s version of the cost to a country of low savings in terms of a lack of fixed investment potential (and thus economic growth potential) is valid, as is the view that SA’s household savings shortage hampers acquisition of residential property due to deposit requirements on home loans once again becoming common. But the implications of low savings rates probably go far beyond this simplistic view. We’re dealing with people, and a low savings rate can greatly restrict people’s personal growth potential through restricting their levels of choice, while also exposing them to the full effects of the blows that some may take in tougher economic times. Their restricted choice often hampers their personal economic output growth, and thus income growth, as well as their personal well-being in terms of happiness and health. While the current tough economic times may, perhaps ironically, improve the savings performance temporarily, creating a greater understanding of the merits and de-merits of saving may be the only way to changing the consumption culture and thereby permanently reducing South Africa’s household savings shortage.

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