The state of savings in South Africa
Cathy Lammas, Business Development Manager at Glacier by Sanlam.
In 1994, with much fanfare and great excitement, South Africa held its first truly democratic elections. The affectionately named ‘Rainbow Nation’ was born, so named for its rich mix of different ethnic groups, languages and cultures. The last remaining international sanctions were lifted and the future seemed rosy. With political liberation, came financial liberation and millions of people previously marginalised, suddenly had almost unlimited access to finance in the formal sector. Financial liberation soon became a double-edged sword. Instead of overall financial wellness and stability increasing, credit quickly became viewed as an alternate source of income with no heed being given to saving. Dissaving became the norm and national and personal debt levels rose dramatically. The average household currently owes 78% of each unit of currency earned. Unemployment is at an all-time high and the nation is labouring under the strain of poverty with large portions of the population surviving hand-to-mouth on social grants. Welfare has become one of the government’s fastest growing expenses.
So what went wrong?
With South Africa being part of ‘BRICS’[1] it seems fair to compare our economy with that of other member states. South Africa is the second largest economy in Africa, a major emergent market and became part of the BRICS nations in 2011. It has a population of about 54 million and is largely regarded as the gateway to the African continent. Unfortunately the country has one of the lowest savings rates of the BRICS nations and indeed in the world. China and India, by contrast, although also rife with poverty and unemployment, show far stronger savings cultures, with China boasting one of the highest savings rates in the world. This access to vast sums of capital seems to have given them the jumpstart they need to finance their own growth and development.
Left to their own devices, South Africans simply do not save enough. Professor Mathew Lester estimates that less than 10% of South Africans can comfortably retire. Unlike China’s culture of saving, South Africa has a culture of spending and consuming. As a nation we seem to place more importance on spending, especially as a way of showing status. In vast parts of China, people know each other’s income and thus have no need to impress each other with the acquisition of goods to prove their status and social standing. They place far more emphasis on saving and the need to be financially independent. They also do not have the luxury of a reliable welfare structure that may serve as a safety net during times of financial distress. In South Africa the opposite is true. Conspicuous consumption is rife, with many people spending (and creating debt) to acquire goods as a visible sign of their status. Such conspicuous spending may be invidious or pecuniary. Invidious spending is that which occurs when members of society consume goods to prove their status. Pecuniary spending by contrast occurs when members acquire goods to pretend they have a certain status. Neither form of spending is healthy; both represent acquisition of goods where the monetary value far exceeds the utility of the purchase. The predominant reason for the acquisition is for proof or pretence of social standing. This is often referred to as South Africa’s “bling culture”.
How do we change this?
The good news is that culture can be changed, but a holistic approach is required, calling on individuals, organisations and the state to step up. Starting at grass roots level, a return to piggy banks would instil a culture of saving at a very early age. Corporate South Africa has a powerful role to play. Increasingly, employees have expressed the desire for managers to intervene and provide guidance with personal financial matters and more specific information regarding suitable financial products. There is a growing need for leaders to put programmes in place to drive behavioural change in the management of personal finances. Government needs to resolutely continue with its plan to prevent employees from encashing their savings when they change employment. South Africa is one of very few countries that allows this. The average South African changes employment at least seven times during their working years and often reaches retirement with not enough accumulated savings.
It may serve the country well to heed the advice of Adam Smith who, in his classic publication An enquiry into the nature and causes of the wealth of nations (1776), cautioned nations against the dangers of failing to save and build capital reserves. An immediate call to action could potentially remedy the situation. Corporate South Africa could consider in-house training in financial matters for their personnel. They may even consider appointing a full-time financial adviser as an extension of their HR services. Individuals too need to take responsibility for their finances and enlist the aid of a professional financial adviser, who can tailor-make a portfolio and financial plan, specific to their needs and circumstances. With a holistic approach it is possible that the dreams of the Rainbow Nation may yet be achieved. The trick is to just get started!
1. BRICS is an acronym for Brazil, Russia, India, China and South Africa. These are nations identified as promising emerging markets.
