South Africans don’t like saving. The country’s savings ratio – comprised of household, corporate and government savings – stands at a paltry 15%. You and I get no thanks for the latest level… The statistics confirm that households are actually dis-saving to the tune of 1.5% per annum. In other words our consumption expenditure exceeds the amount we put away for a rainy day.
Old Mutual is trying to get a handle on how South African households apply their disposable income. To this end they launched the Old Mutual Savings monitor, a bi-annual survey of metro South African savings behaviour and attitudes. The research is conducted by an independent research house by way of face to face interviews with 1 000 metro households. FAnews Online attended the second instalment of this monitor, held in Johannesburg on 15 July 2010. What followed was a perplexing array of ‘less than / more than’ graphs that had the gathered financial journalists furrowing their brows...
What is savings?
Before we get to the survey results let’s consider what we mean by savings. Old Mutual provided a couple of simple definitions for households. They say savings includes putting money away into savings accounts, policies and investments. The most popular savings vehicles identified in the survey include funeral plans (approximately 60%), pension funds (40%), medical aids (38%) and life policies (35%). Savings also includes holding back on spending and using the extra funds to pay debt faster, such as putting extra money into your home loan.
South Africa’s ‘well to do’ tend to save much less than poor households. And the main reason for this is access to credit! “On a per income basis they are better savers than high income earners,” said Elias Masilela, a principle board member at the South African Savings Institute (SASI). “Low income earners don’t have access to credit, so they have to live entirely within their means.” He expanded on the savings concept as follows: “Savings for individuals or households is defined as that part of income that doesn’t go into consumption – and what we define as consumption is any expenditure that doesn’t result in the accumulation of asset.” If you buy a house the monthly mortgage repayment has both an interest component and a capital component. Although you engage in an investment transaction when you make the purchase, you’re actually increasing your consumption and not savings.
Corporate savings is a bit easier to get a handle on. The Reserve Bank simply includes profit generated after tax in the calculation, because these funds are available to companies to reinvest. Government savings is worked out as the difference between recurrent spending and recurrent income. “Capital expenditure goes into the accumulation of assets like building of roads, building hospitals, building schools etc – which is seen as an investment and therefore equivalent to a saving,” observed Masilela.
Post-recession spending on the rise
The July 2010 Old Mutual Savings Monitor is an ideal vehicle to examine post-recession savings attitudes. Old Mutual identified interest rate cuts, lower inflation, inflation-plus wage increases and the 2010 FIFA World Cup ™ as positive influences on the domestic savings rate. Unfortunately the World Cup pops up on the negative side of the savings equation too… Many South Africans abandoned their disciplined financial strategies for this ‘once in a lifetime’ event, splurging on tickets and entertainment during June and July. The slower than anticipated economic recovery and high unemployment also make it difficult to save.
The survey concludes “83% of South Africans are saving the same or less” than six months ago – with 49% of survey respondents saying they saved the same – 34% less and 17% more. Despite this alarming statistic the total savings achieved were slightly higher. Old Mutual tried to explain it with this gem: “The people who saved more than in the previous period, saved more than the people who saved less…” In plainer English: the loss to overall savings due to 83% of survey respondents saving less (or the same) was slightly offset by the 17% who saved more – we think!
The rich versus poor debate
As mentioned earlier, the real stumbling block to national savings is the unhealthy relationship LSM 10 households have with debt. The Savings Monitor concludes that “we’re not saving more because we have too much mid to long-term debt.” People are repaying credit card debt, store cards, personal loans, motor vehicle repayments and bonds (the interest portion) before thinking about saving. But the alarming survey finding was that debt free individuals weren’t saving either. These households were diverting spare cash to consumption expenditure, mainly living expenses.
How do we improve? Old Mutual reckons the answers lie in education and long-term financial planning. Those who plan ahead are better at balancing the debt versus savings equation, they say. The key challenges will be to broaden the reach of financial experts, harness the media and to ensure those who want to be helped aren’t patronised or intimidated.
Editor’s thoughts: South Africans have engendered a ‘spend today’ culture over a long period of time. It’s easy to convince people to save for the future, until you ask them to delay a ‘must have’ purchase today. Have you noticed any improvement in attitudes toward long-term savings through the recent recession? Add your comment below, or send it to gareth@fanews.co.za
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Added by Frank, 19 Jul 2010