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Help me to help you… Get to grips with your client’s money mindset

26 August 2021 Gareth Stokes

A large proportion of South African households are under significant pressure despite aggregate incomes recovering to pre-pandemic levels. The jobs and income trends that have exhibited over the past year suggest that people who have formal employment can get back to their 2019 spending habits, whereas those in the growing cohort of unemployed are struggling. “There were close to a million fewer jobs in the formal sector in Q1 2021 compared to Q1 2020, which speaks to increased inequality,” said Isaac Odendaal, Investment Strategist at Old Mutual Wealth. He supplied the macroeconomic backdrop during the 2021 Old Mutual Savings and Investment Monitor (OMSIM) survey launch.

A bottom-up assessment of household savings

The OMSIM survey has probed the savings and investment habits and behaviours of South Africa’s working metropolitan households since 2009. In 2021, it surveyed over 1500 respondents earning at least R8000 per month, to learn more about the way households save, spend, live and invest. Many commentators rate the survey for its comprehensive, bottom-up assessment of how households interact with money. We certainly encourage the financial and risk advisers among our readership to get their hands on a copy to learn more about how their clients and potential clients have weathered the economic fall-out brought about by more than 19-months of pandemic. 

Odendaal said that the commodity price boom currently underway had been a silver lining for the domestic economy. Record prices for base and precious metals had resulted in large revenue collection overruns, which in turn allowed government to extend its R350 per month pandemic grant until end-March 2022. “Commodity booms do not last forever and at some stage the prices will turn,” he warned, before noting that government would have to push ahead with other economic reforms for when this revenue windfall dried up. His concluding remark was that South Africa, while benefitting from the strong global economic recovery forecast for 2021 and 2022, would face increased levels of inequality as pandemic-related job and income losses filtered through the economy. 

Lynette Nicholson, Head of Research at Old Mutual, presented the 2021 OMSIM findings with the caveat that the findings referred to the ‘lucky households’ where breadwinners still had jobs and brought in R8000 or more per month… She also pointed out that it was too soon to say whether pandemic had caused permanent changes to households’ investment and savings behaviours. A word map of survey responses to the question “give three words that describe South Africa, today” makes for depressing viewing. Corruption, poverty and unemployment featured strongly, with only 34% of respondents indicating that they felt confident about the South African economy. And only 46% expressed happiness with how government was handling the pandemic. 

Incomes remain under pressure

The anecdotal evidence that incomes had reached pre-pandemic levels was somewhat undone by questions about respondents’ current financial situations. “At 38%, there is still a quite significant proportion saying that they are earning less than in 2019,” said Nicholson. The survey also revealed that individuals remained stressed about their financial situations. An alarming 56% (2019: 58%) said they were either overwhelmingly stressed or highly stressed. To make matters worse, a third of respondents had one month or less in savings to last them should they lose their jobs. There was some good news, in that around two thirds of respondents expected their financial outlook to improve markedly in the coming six months. 

“The pandemic seems to have jolted many of us into facing up to financial realities that we may have been in denial about in the past, with 87% of respondents saying that Covid-19 had made a difference in the way they thought about and manage their finances,” said Nicholson. Financial advisers will appreciate the fact that 68% of respondents were thinking about saving in some way. Your challenge, should you accept it, is to reach out to as many clients as possible to offer help in household budgeting; debt management and reduction; and optimal short-term savings strategies, among other basic financial planning needs. 

The 2021 OMSIM survey also pointed to advice and distribution opportunities in the risk protection product universe. “Immediately following the protests we approached respondents to re-test their views, finding that one in four were assessing or reassessing their risk cover,” said Nicholson. The survey confirmed that financial product holdings generally increased with age, with some demographic nuances. “There is a lower incidence of short-term insurance among 18 to 29 years olds, which group also reflects lower take-up of protection products that speak to their own mortality,” she said. Smart financial planners could approach this information from one of two angles, either focussing on the older demographic, or repurposing their advice and product ‘mix’ to appeal to younger consumers. 

Earning more or spending less…

Households are taking drastic measures to cut down on unnecessary spending, with one in three saying they had combined homes to save costs. We had a chuckle at the ‘top four’ steps taken by respondents to curtail their spending, because these were as much linked to the draconian lockdown regulations as to disciplined financial behaviours. Cutting out alcohol; leisure activities such as eating out and movies; clothes and accessories; and holidays and travel featured prominently. As for income, it seems many respondents now view an extra income as a ‘must have’ rather than a ‘nice to have’. 

These additional income opportunities take many forms, from a business or craft completely unrelated to a main job to other side hustles; second jobs; or extra freelancing and contract work. “Having a supplementary income is no longer deemed a luxury and it is highly likely that we will continue to see an increase in the number of people who pursue this route as a way to keep afloat during tough economic times,” said Nicholson. In 2017, 63% of the sample said they had a single source of income compared to 53% in 2021. 

Expert advice or bust!

“There has never been a more important time than now to take control of your finances, get expert financial advice and plan carefully for today, tomorrow and your long-term future,” concluded Nicholson. “The 2021 OMSIM survey shows how astoundingly resilient and creative South Africans are, even in the face of illness, lockdowns and economic hardship; but it must be remembered that this report reflects only our working urban population”. Help for the thousands of unemployed can only come from economic growth and job creation! 

Writer’s thoughts:
Our two cents following the latest Old Mutual Savings and Investment Monitor survey is that financial and risk advisers are fishing in a smaller pond, with fewer and smaller fish. To be brutally honest: We cannot sell to the unemployed while the country’s lower income earners have precious little cash available for investment and risk products. Are you successful at selling investment or risk products to households earning between R8000 and R15000 per month, or do you focus all your activity at higher LSMs? Please comment below, interact with us on Twitter at @fanews_online or email us your thoughts [email protected].

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As National Treasury mulls a two-bucket retirement system, mandatory contributions and preservation, regulation 28 is being amended to allow up to 40% of retirement fund assets to be invested in SA-based infrastructure… Which of the following retirement fund ‘tweaks’ would you consider most beneficial to your clients?

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