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Old Mutual Savings & Investment Monitor: More South Africans biting the bullet, cutting costs

24 November 2011 Old Mutual
Lynette Nicholson, chief researcher of Old Mutual

Lynette Nicholson, chief researcher of Old Mutual

Marshall Rapiya, CEO of Old Mutual South Africa

Marshall Rapiya, CEO of Old Mutual South Africa

South Africans have begun to heed the calls to rein in their short-term debt and curb spending, rather than continuing to be charged high interest rates. That’s the primary finding of the fifth Old Mutual Savings and Investment Monitor, released today.

Lynette Nicholson, chief researcher of Old Mutual, says: “These results indicate an increase in the number of people spending less and a concomitant increase in cost-cutting. Overall, we’re still saving less, but we’re also coping better because we’re more careful with managing our finances and we’re more willing to cut back o­n luxuries.”

This is the fifth Old Mutual Savings and Investment Monitor update, a bi-annual survey of working metropolitan households in South Africa and shows clear trends in savings patterns and behaviour.

The latest statistics show that 40% of South Africans are saving less than they were a year ago.

It also found that:
•88% affected by the recession, up from 82% six months ago
•75% now wait until they have saved before buying, rather than buying o­n credit
•36% of black respondents belong to a stokvel; a significant decline from July 2011, but stokvels are a major economic force, worth around R38.6bn per year
•8% decrease in credit card ownership
•Over 50% of South Africans feel that saving for education is more important than saving for retirement. This view is particularly strong in black households where 2 out of 3 agree
•1 in 2 working metropolitan South Africans do not contribute to a pension or provident fund, nor do they do have aretirement annuity.

Nicholson says: “While there’s an increase in the number of South Africans who are spending less, the number of South Africans who are saving less has also increased. So, more people are making a plan and being more careful, more pragmatic and less ‘spooked’ about their finances, butcutting expenses and getting rid of short-term debt takes priorityover saving.”

Nicholson adds it’s timely that the new findings are issued just before the festive season, when many consumers are tempted to spend money they don’t have.

“These findings may indicate that people are less likely to spend o­n credit this festive season than in previous years,” she says, noting that 75% of respondents claim that they now wait until they have enough money before buying, and that the number of respondents who have credit cards has dropped from 37% to 29%.

The number of people with personal loans has declinedfrom 19% to 11% in the last year, but the percentage of those who’re struggling to repay them has increased year-on-year.

The study has also shown the power of stokvels: around 36% of black respondents belong to stokvels, contributing an average of R520 per month.

“Apart from quick access to money for emergencies such as school fees and uniforms, and paying off debt, stokvels also attract members because they’re trusted and flexible,” says Nicholson.

The latest Old Mutual Savings and Investment Monitor estimates the value of stokvels in South Africa to be R38.6 billion per annum (this excludes burial societies and grocery schemes).

The survey has found that South Africans tend to save for short-term commitments which are closer o­n the horizon, such as their children’s education, rather than retirement funding needs.

“There is a great dependency o­n the government to provide for respondents in their old age,” says Nicholson. “This has remained constant over the last two years and indicates that we will have a large number of people who retire with no provision for their old age:o­ne in two South Africans believes that they will rely o­n the government and/or their children in the future.”

Marshall Rapiya, CEO of Old Mutual South Africa, says: “As a leader in savings and investment, Old Mutual is reminded through this research that consumers are still hungry for more knowledge about ways in which to save properly, with more than 80% of respondents saying they want to learn more about how to save.”

He adds: “The formidable power of stokvels is also an opportunity for us. We can use them to reach consumers and to empower them with the financial education they need to save and invest for their future even when they have limited resources.”

Elizabeth Lwanga-Nanziri, CEO of the South African Savings Institute (SASI) agrees the release of the Old Mutual Savings and Investment Monitor was timely.

“It underscores the message of SASI’s Festive Season Savings Campaign. South Africans should view their spending over the next few weeks in the context of the expenses they’ll have next year, such as school fees, medical care, transport and so o­n.

“Bonuses and 13th cheques should be seen as opportunities to start 2012 o­n a better financial footing than many of those around you, as well as buffering your family against unexpected expenses.”

Lwanga-Nanziri noted that today’s briefing takes place just ahead of the Financial Planning Institute’s (FPI) Financial Planning Week, from 26 November to 2 December.

•The Old Mutual o­nline tool for calculating education costs is available from the InvestRight section of the http://www.oldmutual.co.za/savingsandinvestmentmonitor (Twitter http://bitly.com/vlKRb3)

•Old Mutual has invested more than R65 million o­n financial education initiatives since 2007, including the O­n the Money financial education programme. Nearly 77 500 people have attended the O­n the Money workshops and the Department of Basic Education has incorporated it into the education curriculum.

Rapiya concludes: “We need to continue to find ways for consumers to deal with the fact that life today is hard, but that they need to keep an eye o­n tomorrow. We must help them cope with the real demands of making ends meet every day as well as plan for the future.”

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