Young savers pivotal to national growth

It may be a crude generalisation that youth is wasted o­n the young. But it’s also true that young people sometimes fail to see the opportunities available to them.

One good example is saving: for people who’re fortunate enough to be earning money, the years between age 18 and 34 are crucial for building financial security.

Iain Williamson, Managing Director of Retail Affluent at Old Mutual, says: “As we celebrate Youth Month, it’s important to note that true freedom includes financial freedom, and saving is crucial for that.”

Williamson notes that the recently released Old Mutual Savings Monitor indicates that 31% more people in the 18-24 age group are saving than last year, but that South Africans in general aren’t saving enough. Included in this group are young people, who’re missing out o­n a critical window of opportunity for saving.

“Young people often have more disposable income and fewer financial obligations than at any other time in their lives. Sadly, too few of them capitalise o­n that.

“Young people who have the financial capacity to save, need to be aware that they’re doing so not o­nly for their own individual futures, but that each person who saves contributes to our country’s ability to do great things.

“In that sense, saving among young people delivers a double benefit, contributing to individual financial freedom as well as national growth.”

Williamson notes that, as a nation, we have low disposable income growth, low economic growth, low employment levels and rising tax burdens. Inflation continues to create the mindset of buying now before prices rise.

Real growth in long-term gross national income depends o­n South Africa’s ability to produce, and that saving can provide capital for investment in productivity, technology or production capacity, which in turn can drive economic growth and the rate of job creation that cuts poverty levels.

Williamson adds that the greater propensity to spend – the so-called urge to splurge – can lead to spiralling individual debt, but also hampers us as a nation from increasing our capacity to produce. Young people may also be prey to the pressures of consumerism, leading to a pattern of “borrowing to spend” – buying o­n credit.

“Poor savings habits among young people make them vulnerable to rising prices and unpredicted income changes; such habits can, and do, affect the ability of young breadwinners to pay deposits for large assets such as homes, so harming their prospects for wealth accumulation.”
While more young people are saving than before, overall they’re still doing too little to provide for the future. For instance, o­nly 37% have provident funds and o­nly 21% have medical aid according to the Old Mutual Savings Monitor, Williamson notes.

For those who can avoid that trap, there’s the reward of being able to grow their money in long-term savings vehicles such as unit trusts, and to begin earning compound interest.

“Financial education programmes initiative must continue to drive home the message that simply leaving money in your bank account isn’t saving. Saving o­nly happens when you actually grow your money,” Concludes Williamson.