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Old Mutual Savings Monitor spotlights pressing need to learn how to save

20 July 2011 Old Mutual
Lynette Nicholson, Old Mutual?s Chief Researcher

Lynette Nicholson, Old Mutual?s Chief Researcher

•Decline in savings across all income groups
•Polarisation of attitudes
•Only 53% contribute to a pension or provident fund to save for retirement
•82% affected by recession
•82% want help in saving
•Saving takes backseat after cutting costs and reducing debt

South Africans’ savings habits were placed firmly in the spotlight today (Wednesday 20 July 2011) with the release of the fourth Old Mutual Savings Monitor, which shows a decrease in savings levels and a polarisation in attitudes toward saving.

This latest survey reinforces the call to action made by Minister of Finance Pravin Gordhan at the South African Savings Institute breakfast launch of National Savings Month, urging the nurturing of a savings culture.

More than 82% of respondents want advice o­n overall money management, while 22% of South Africans have been affected by retrenchment, either directly or indirectly, including loss of earnings such as commission, and unemployment among family members.

Old Mutual’s chief researcher Lynette Nicholson says South Africans’ belief in being able to manage their money has fallen and their mean satisfaction level with their finances has declined from 6.5 to 5.7 out of 10.

As this is the fourth bi-annual Old Mutual Savings Monitor update, the study is beginning to show powerful evidence of savings patterns and behaviours, with clear trends and clear calls to action, she adds.

The survey of working metropolitan households in South Africa found that more people are saving less than they did before. This is worrying as the previous Old Mutual Savings Monitor, released in November 2010, indicated a slight improvement in saving patterns.

“82% of respondents say the recession has affected them in some way, irrespective of their income levels,” says Ms Nicholson.

Most people have reacted in o­ne of two ways, she explains. Some are so unnerved by the state of their finances that they’re ignoring them and thus aggravating their problems. But a second group has taken cognisance of the need to act and is doing so.

“We have categorised these groups as Panicked Procrastinators and Contented Organisers. They are found across all income groups, showing that even people with modest incomes are able to save, and that conversely, well-off people are by no means immune to poor savings habits and the consequences.”

The Contented Organisers grew by nearly a fifth, from 20% to 24%, while Panicked Procrastinators grew from 30% to 40%. The in-betweens fell by 14%, from 50% to 36%, showing a hardening in attitudes towards the positive and negative extremes.

Ms Nicholson says that both these groups show an increased interest in learning more about the basic steps of saving and getting out of debt.

The overarching conclusion of this finding is that there is an urgent need to empower the Panicked Procrastinator group to become Contented Organisers.

Another eye-opening finding was that o­nly 53% of employed metropolitan South Africans contribute to a pension or provident fund to save for their retirement.

Equally alarming is that 1 in 3 of the respondents feel the government will take care of them o­nce they are unable to take care of themselves, while 33% also believe their children will do so. This attitude is consistent across all age groups.
In the 18-30 age group:

•84% are very optimistic about what the future holds for them
•63% claim that becoming rich is a priority in their lives
•47% expect their financial situation to improve in the next 6 months

This general optimism in the 18-30 age group flies in the face of their realities: around half of those surveyed are already either caring for parents or living with parents, generally because they can’t afford to leave home.

Another growing category that’s especially hard-pressed to save for their retirement, Ms Nicholson points out, is the Sandwich Generation: those who are responsible for the care of both their own parents and their own children.

The increase in the prices of essentials such as food, fuel and electricity means that the 47% of respondents who haven’t started saving for their retirement now have even less disposable income to do so.

“What makes this situation worse is that the later you start to put savings aside for your retirement, the more you need to save each month and the longer it will take to start generating the compound interest that’s vital for growing retirement savings,” says Ms Nicholson.

The monitor shows an increase in some areas of savings, such as in the number of people saving for funeral expenses, and saving to pay off debt. Saving for home improvements has also climbed, while saving for luxuries such as holidays has decreased.

Ms Nicholson adds: “While there’s a greater awareness of the importance of debt management, the financial recovery evident last year has stalled. The external factors affecting day to day living such as increases in energy costs – fuel and electricity – as well as the cost of food, are putting even more strain o­n household finances.”

Cost-cutting is already apparent in the increase from 53% (2009) to 59% (2011) in the number of home-owners who now pay o­nly the minimum o­n their monthly bond instalments, instead of paying that little bit extra to make it a saving. The rise in the number of people who use credit cards, from 32% (2009) to 37% in 2011, also reflects the short-term approach to managing finances.

“Under these difficult circumstances, those consumers who don’t regard saving as an expense and who don’t make it a part of their monthly budget will find it very hard to save anything at all.”

Generally, consumers prioritise savings o­nly after cost cutting or cost control, and debt management. This has led to a decrease in the total levels of savings as a percentage of household income, she says.

A fifth of those who say they’re saving more say they’re doing so because they recognise the importance of saving and because of a growing awareness of the need to watch expenses and budget carefully.

Ms Nicholson adds: “Old Mutual has identified through this research that consumers are crying out for more knowledge o­n how to save properly.”

Old Mutual has invested more than R65m 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.

Old Mutual also supports the Financial Services Board’s Regulatory Examination for financial advisers, and shares its belief that increasing standards of service delivery will benefit the entire financial services sector.

“As South Africa’s largest savings and investment company, Old Mutual recognises the responsibility we have to our nation to help nurture a culture of savings. Knowledge of finances and money management is crucial for creating and sustaining an environment conducive to the economic growth and social development our country so sorely needs."

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