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SA can overcome poor savings habits with new ways to invest

04 July 2022 upnup
Justin Asher

Justin Asher

The state of wealth accumulation in South Africa has not been at an acceptable level for a long time, with StatsSA reporting a household savings rate of just over 1%. In this op-ed, Justin Asher from upnup looks at how passive investments can help South Africans think differently about the way they save.

Saving has never been a high priority for many South Africans but with the pandemic and impact of the Ukraine war resulting in financial uncertainty, one can hardly blame consumers for shifting saving even further down their priority list. It’s difficult to budget for investments when things like fuel and general household expenses are steadily increasing, consuming larger and larger portions of expendable income. However, there are still ways to set money aside despite the difficult financial landscape.

Barriers to saving
Although South Africa has a very poor savings culture, saving has become less of a priority for people worldwide. This is made worse by the effects of COVID on the economy and the rising cost of living, especially since the last fuel price hike.

However, a recent study by Kantar has revealed that many South Africans want to save and that they are, in fact, aware of the importance of saving for a rainy day, but on top of dire economic circumstances, there are several barriers keeping them from doing so on a regular basis.

Firstly, they find most savings options complex, and they don’t understand how a typical savings account can help them to grow their wealth. The research also showed that investors, especially younger investors, are reluctant to put their money in formal investment vehicles as they find it cumbersome to gain access to their funds in times of need. Furthermore, the younger generation of investors have an appetite for risk and want their money to grow fast. As such, they are looking for more unconventional ways to invest, including shares, forex trading, and cryptocurrency, not necessarily offered by traditional banks and financial institutions.

Outside the box
The good news is that there has been a great deal of innovation in the fintech space in Africa and South Africa in particular lately, giving people alternatives to traditional modes of saving. In line with the worldwide post-COVID shift towards digitalisation, these options are designed for mobility and ease-of-use.

There is a move to "open banking", allowing 3rd party users to create apps that leverage personal data. This will have an exponential impact on personal finance as it means that consumers are no longer reliant on traditional financial institutions.

This shift is certainly a move in the right direction, breaking down barriers to saving for South Africans and offering them the opportunity to easily get into the habit of saving on a regular basis.

Starting small
Alongside fintech innovations, the concept of micro-investing now allows people to invest even if they have limited funds. It involves investing small amounts on a frequent basis, and there are several apps that enable micro investment in asset classes such as stocks, shares, and crypto currencies. It rules out brokerage fees and minimum investment amounts and has instantly opened up the investment arena to a large band of the South African population who would not have had access to it otherwise.

Most micro investment apps can be securely linked to any bank account, so it's an easy way for new investors to enter the market, or to keep saving and investing despite challenging times. The upnup app allows users to save a small amount of money via the linked account every time they do a transaction, whether it be for food, petrol, airtime, or anything else. It offers two ways to allocate small savings amounts to daily transactions—with "addup," a user can choose to add any set amount on the top of every transaction.

So, if someone sets this amount at R5 and spends twice a day, a total of Rs 10 will be invested. The second option is "roundup," which, as the term implies, means that each transaction is rounded up to the nearest R5, R10, or R50. If you choose to round up to the closest R10 and you spend R677, the amount will be rounded up to R680 and R3 will be micro-saved and invested. This will be done on a weekly basis, and a minimum of R10 is required.

Many consumers may find this approach less overwhelming than budgeting to save large chunks of their income on a monthly basis. In the grand scheme of things, saving small amounts that add up is definitely preferable to saving nothing at all. From this angle, micro-investment may just be the answer for South Africans to overcome their poor savings habits for good.

Justin Asher is head of strategy and marketing at upnup- a new micro-savings and investment platform

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