Save now to avoid economic hardship, urges Old Mutual
Uncertainty over the economy and its implications for their personal finances is causing South Africans to delay making financial decisions, said Mohale Ralebitso, head of Old Mutual’s Marketing, Communications and Corporate Affairs division.
At a media briefing he explained this was one of the key findings of the sixth and latest Old Mutual Savings and Investment Monitor, which twice a year examines the financial attitudes and habits of working, metropolitan South Africans.
“It’s clear that South Africans are generally feeling very unsure,” he explained. “They are not confident that sound planning will secure a positive outcome. This climate of doubt leads many to postpone committing to saving. Unless this is immediately addressed, the long-term consequence is that many working South Africans may not be spared economic hardship later in life.”
“We already know that 44% of working South Africans have no formal retirement savings: they contribute neither to a pension or provident fund, nor to a retirement annuity.
“The longer people delay starting to save, the less time they’ll have to reap the benefits of compound interest.”
This concerning trend is underpinned by the increase in the “financial dependency” outlook. The number of respondents who believe their children should care for them when they’re older rose from 35% in November 2011 to 40% in July 2012, and those who feel the government should do so jumped from 29% last November to 38% this July.
That mindset risks perpetuating the plight of “Sandwich Generations”, which refers to the generation of breadwinners that has to support both dependent children and dependent, ageing parents.
A further concern is the increase in metro working consumers who plan to rely on the value of their primary residence to fund their retirement. This outlook rose to 14% from 5% in November. “Some homeowners believe they don’t need to save as much for their later years because they can sell their homes, ‘downscale’ and live on the proceeds. It’s unlikely to be quite that lucrative or easy.”
Ralebitso adds that these statistics point to the ongoing need for relevant, accessible financial education.
“South Africans must be empowered with information on how to get out of debt and grow whatever money they have.”
Other trends
Fighting the urge to splurge:
Respondents were asked what they’d do should they come into some money. That windfall would be used differently depending on its size. For example, if the windfall was the equivalent of 12 months’ salary, 50% said they’d save or invest, 16% would use it for property, while 15% might use it for a car. But only 35% of respondents indicated they would save or invest a windfall equivalent to one month’s salary, 23% said they’d pay off debt while 13% would spoil themselves.
Pressure continues:
In 2011 consumers showed increased awareness of their financial affairs, by cutting down on expenses, for example, and taking steps to pay off debt and managetheir budgets better. On a scale of 1 to 10, consumers gave an average of 6.3 in terms of how satisfied they were with their financial situation. That score has remained at 6.3 in July 2012, even though consumers continue to be under financial pressure.
Debt:
About 2 in 3 consumers (68%) believe that “there is no alternative but to get into debt”. This equals the highest measure seen for this sentiment over the Savings and Investment Monitor history: the July 2010 score was also 68%. However, a key finding in the July 2012 results is a significant increase in personal loans from financial services providers, from 11% in November 2011 to 16% in July 2012.
Cards:
Credit card usage has remained relatively consistent since November 2011 at 29% (which is down from 37% in July 2011). Store card usage has risen marginally to 63% from 60% in November 2011.
