/ 21 July 2011

How is SA responding to financial difficulty?

The results from this week’s Old Mutual Savings Monitor gave some insight into how people have responded to financial difficulty.

Of the 1 000 people surveyed, 82% said that they had changed their financial behaviour as a result of the economic downturn. However it was not necessarily positive changes.

Old Mutual classifies respondents into three groups depending on their responses to the questions.

Contented organisers take active control of their money. Panicked procrastinators tend to live in financial chaos and take no action. The in-betweens have some control but are not active in managing their finances.

Lynette Nicholson, head of research at Old Mutual, says over the last six months they have seen a drop in the number of in-betweens from 50% to 36% as people have been forced to respond to financial distress.

Some people have got their financial act together and the survey showed an increase from 20% to 24% in the number of contended organisers, however the number of panicked procrastinators has also increased from 30% to 40%.

It is interesting to note that of the people who have increased their savings, 29% of them attribute it to a change in mindset rather than in increase in income.

Overall there was an increase in the number of people who hate to deal with their finances, making up 42% of respondents whilst there was a decrease in the number of people who tend to make decisions quickly based on gut feel from 57% to 48% of respondents.

This would suggest that people are aware that they need to spend more time on their finances, even if they hate doing so.

Debt dependency and unemployment
The survey also showed a strong increase in the need to take on debt to survive, with 66% of respondents stating that they believe there is no alternative to get into debt compared to 61% in the last survey in November 2010.

The survey showed that of the 45% of people that are saving less than last year, 22% stated that this was due to a loss in income either because of retrenchment, or a family member losing a job or lower earnings.

This suggests that despite the figures from the economists that our economy is recovering, this is not being experienced in the job market.

Higher living costs with increases in electricity, petrol and food are also making it difficult for people to save. People are generally less satisfied with their financial situation than they were six months ago.

Settling debt
The survey, which defines saving as both putting money away and paying off debt faster, shows that more people are opting to pay off debt and buy funeral policies and are not saving for luxury items like holidays.

Generally there seems to be a greater awareness of the importance of debt management.

Consumers are wary of taking on new debt and are trying to pay off existing debt faster or at the very least trying to make payments on time so as to avoid extra interest.

Of those surveyed 51% said that their children’s education was their main savings goal, followed by emergency savings and retirement.

Financial advisers in favour
Consumers appear to have lost confidence in their ability to make good savings and investment decisions and 70% of respondents stated that they need more education on how to manage their finances.

The survey showed that there appears to be a swing towards seeking professional advice rather than simply relying on word-of-mouth and the advice of friends and colleagues.

Nicholson says another concerning statistic was that 38% of people surveyed made no provision for their retirement through a company pension fund or retirement annuity.

While this is to be expected for lower income earners who do not benefit from the tax deductibility of these products, it is alarming that 21% of people earning more than R20 000 a month and 16% of people earning more than R40 000 a month have not made provision for retirement.

In this income bracket people are not living hand to mouth and are making lifestyle choices that will impact on their ability to provide for themselves in their old age. These people are clearly among the 33% of people who believe that the government will take care of them in their old age.

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