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Small steps being made in the right direction

12 July 2017Jonathan Faurie
Lynette Nicholson, Research Manager at Old Mutual

Lynette Nicholson, Research Manager at Old Mutual

July is savings month. Adopting this label was government’s attempt to highlight the importance of savings and to try and create a savings culture in a country that is not famous for it. The reality is that it is a hard knock life for people who want to save, the economy is experiencing turbulent times and political actions/decisions are placing South Africa in mortal danger of yet another credit downgrade at the end of the year.

Old Mutual recently released its Savings and Investment Monitor where it pointed out that the current economic and political climate is driving some South Africans to work two jobs in order to make ends meet at the end of the month.

Low confidence levels

One of the key finding of the Monitor is that confidence levels in the country are declining. In 2011, the participants in the Monitor were 58% confident that government policy was sufficient to add stimulus to the economy; six years later, this figure has dropped to 34%.

“A single political decision can significantly affect confidence,” says Lynette Nicholson, Research Manager at Old Mutual, “In 2016, the confidence level in government and the economy was 31%. However, the research was undertaken after government’s announcement to fire then Finance Minister Nhlanhla Nene on 9 December. If the research was done on 8 December, confidence levels would have been close to 50%.”

She adds that South Africans are also losing confidence in their abilities to make financial decisions. In 2011, South Africans rated their ability to make financial decisions a 6,9 out of 10 while in 2017 this dropped to 6,5 out of 10.

Key allocations

Predictably, the majority of household budgets are being allocated towards consumption and living expenses. Where the budget goes after that becomes interesting.

There have been rumours that South Africans are changing their attitude when it comes to debt and servicing short-term debt; and the monitor validates these rumours. According to the monitor, more money is being allocated to servicing debt than is being allocated to savings. Depending on how many credit cards you have, this can be a good thing.

This may be because people are looking at their debt in a different way; however, it may also be driven by other factors.

The monitor shows that people in need of a loan are turning less towards financial institutions and more towards friends and relatives. Nicholson points out that these people are also finding it hard to cope and are calling in loans a lot sooner than they previously were.

The amount of money being borrowed is also declining. More amounts of less than R6 000 are being borrowed while there are less instances of over R20 000 being borrowed.

Saving and investment vehicles used

Traditionally, stokvels and funeral policies have been the most popular savings and investment vehicles in the country, and still are.

However, there are increased instances of people using pension and provident funds as well as retirement annuities to save for their future. “There is power in compounded interest, and the public is becoming aware of this.”

There are also increased instance of the purchasing of life, dread disease and disability cover. “This may be because people view their ability to earn an income as their greatest asset, or it could be because companies are purchasing these products for staff as an attempt to offer employee benefits,” said Nicholson.

However, saving for children’s education is still a major concern; this dropped from 56% in 2012 to 44% in 2013 and has never recovered. The Old Mutual statistics show that from 2013, the average of people saving for education has been steady at 40% or just over. Predictably, lower income earning households are affected the most by the inability to save for education.

Responsible lending

As pointed out above, stokvels are the most popular savings vehicles in the country.

This is one of the first years that Old Mutual monitored what the money drawn from stokvels is being used for, so there isn’t any trends to compare to. However, the 2017 monitor points out that 43% of the money being drawn from stokvels is being used to pay off debt. It is interesting to note that 25% of money being drawn from stokvels is being used to fund education.

This is possibly the largest indication that South Africans are becoming more responsible when it comes to debt.

Editor’s Thoughts:
It is reassuring that we are making small steps in the right direction when it comes to savings. Servicing debt must be seen as a priority by those who can afford to, so a different mindset towards it is a victory, no matter how small. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.

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