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A strong savings culture good for financial services

28 November 2011 Gareth Stokes
Gareth Stokes, FAnews Online Editor

Gareth Stokes, FAnews Online Editor

South Africans are notoriously poor savers. The South African Reserve Bank (SARB) says the gross saving ratio of households was a mere 1.6% at 31 March this year. “Households maintained a fairly constant level of saving amid difficult economic conditions,

Professionals in the financial advice space rely on health consumers to keep their business ticking over. One of the best ways to find out about the financial wellbeing of your clients (and potential clients) is to pore over the results of the fifth Old Mutual Savings and Investment Monitor update. The survey is conducted bi-annually to determine trends in savings behaviour among working metropolitan households across South Africa. Released 24 November 2011 the latest survey suggests that South Africans have finally heeded the call to rein in their short-term debt and curb spending! Lynette Nicholson, chief researcher at Old Mutual, says: “These results indicate an increase in the number of people spending less and a concomitant increase in cost-cutting. Overall, we’re still saving less, but we’re also coping better because we’re more careful with managing our finances and we’re more willing to cut back on luxuries.”

A mixed bag of savings sentiment...

The sentiment expressed by survey respondents should be useful to financial intermediaries who are keen to fine-tune their sales strategies. A thorough understanding of consumer sentiment around saving will certainly give you an edge over your competitors. What can we learn from Old Mutual’s latest foray into the psyche of South Africa’s savers? First off we have confirmation that the recession – or slower than expected post-recession economic activity – is weighing heavily on Joe Average’s mind. In total 88% of survey respondents admitted they were affected (financially) by the recession, versus 82% in the previous survey. This reality will probably reflect in a more cautious and conservative approach from clients particularly in the investment space. Intermediaries will be hard pressed to ensure these clients maintain enough equity exposure to achieve their long-term savings goals.

One of the plus points from the survey is an improved attitude to short-term high-interest debt. An impressive 75% of respondents said they now saved before buying big ticket and luxury items rather than buying them on credit. The number of people with personal loans declined from 19% to 11% over the past year. But there was bad news too… There was a significant increase in the number of consumers with personal loans who were struggling to make repayments. The survey also hints that short and medium-term savings goals are taking precedence over long-term retirement savings goals. More than 50% of South Africans feel that saving for education is more important than saving for retirement, for example. And half of South Africa’s metropolitan households make no contributions to pension or provident fund at all! The survey also reveals that these individuals have no retirement annuity investments. There are certainly opportunities for financial advisers in this space, with allowance for income constraints of course.

Traditional products still have a place in the savings environment. Approximately 36% of survey respondents indicated that they belonged to stokvels. Although there has been a steep decline in this measure since July 2011 Old Mutual believes this savings mechanism (excluding burial societies and grocery schemes) is worth in the region of R38.6 billion per year.

Building blocks for healthier personal finances

Education is one of the major building blocks for improved savings. Marshall Rapiya, CEO of Old Mutual South Africa, says: “As a leader in savings and investment, Old Mutual is reminded through this research that consumers are still hungry for more knowledge about ways in which to save properly, with more than 80% of respondents saying they want to learn more about how to save.” He believes that stokvels can be used to reach consumers and empower them with the skills they need to save and invest for their future, even when they have limited resources. As we move higher up the LSM ladder the financial intermediary plays a more crucial role.

There are many simple steps your clients can follow to improve their personal savings habits. Top of the list is to draw up a detailed household budget to list all incomes and expenditures. You will be surprised how many people are unaware that they consistently spend more than they earn. This simple exercise will flag those consumers who are hopelessly indebted and provide an early opportunity for them to seek appropriate help through debt counselling channels. Financially sound clients benefit too – and will be able to use the budget to identify and eliminate wasteful and unnecessary expenditures. Your client’s debt servicing commitments can also be assessed and restructured to make more aggressive repayments on those debts attracting the highest interest rates.

The final objective of the household budget is to identify how much money is available for additional savings. This additional cash is the financial intermediary’s bread and butter. Commonsense dictates that short-term debt such as credit cards, store accounts and personal loans should be paid off first. Thereafter there are dozens of financial products from which you can structure an optimal savings solution. The release of the Old Mutual Savings and Investment Monitor is timely. Elizabeth Lwanga-Nanziri, CEO of the South African Savings Institute (SASI) observes: “It underscores the message of SASI’s Festive Season Savings Campaign. South Africans should view their spending over the next few weeks in the context of the expenses they’ll have next year, such as school fees, medical care, transport and so on.”

Editor’s thoughts: There is little doubt local consumers will come under more pressure through 2012. We haven’t yet seen the last of the inflation-plus administered price increases from Eskom and municipalities… And the weaker rand is going to set the inflation monster in motion too. Would you say that your clients’ capacity to purchase additional risk and savings product is shrinking with time? Please add your comment below, or send it to


Added by Quinten Knox, 28 Nov 2011
I would love to save more but my FAIS compliance costs are such that I have nothing left to save.
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Added by Cynical Simon., 28 Nov 2011
The available savings instruments are simply not generating enthusiasm;why they arent even boosting confidence.Those with mentionable returns are perceived to be high risk and those with an inkling of certainty could be identified as highway robbery.A consumer who saves through a savings account at a bank is stupid and a person who ventures into almost any other instrument is an idiot.The only instrument I at this stage of the economic turmoil will recommend is life cover for the breadwinner,because boy oh boy is that a compulsory investment that if the paw-paw hits the fan is worth it's weight in gold.!
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Added by dr.zeek, 28 Nov 2011
RE Eskom hikes: here in sunny City of Johannesburg, we have just had an increase of 100% in our monthly rates and taxes account. That equates to about R4k per month. How on earth are we supposed to save in such an environment? My view is that poor are simply to close to the breadline to save while the middle classes have to pay twice (in taxes and then again) for security, health, education etc and thus are also pretty damn close to the breadline. Most families I know cannot live off a single salary - yuo require 2 professionals working their behinds off to be able to afford anything resembling a reasonable standard of living. SA has simply become too expensive.
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