/ 11 December 2006

Hey, big spenders

The latest figures from the annual Finscope survey by FinMark Trust show a positive picture for banking in South Africa. The number of people banked has increased from 46,6% last year to 51%, with the biggest increase among the lower-income earners.

According to the survey, 800 000 people have entered the financial services arena and Mzansi (the low-income, low-cost bank account) has been hailed as a success. Banking products have had a higher level of penetration into the poorest communities than even the informal offerings, such as stokvels and burial societies. However, Mark Napier of FinMark Trust says a large part of this growth has come from women with child grants and the Post Bank. ”The reality is that banks are still hovering around LSM 5 plus. It is a positive move, but the next challenge is for banks to move into the lower LSM levels.”

The banks should also be a tad disturbed by the fact that 44% of South Africans believe they could easily live their lives without a bank account. Interestingly, the more affluent have a dimmer view of how banks treat the poor than the poor themselves, with a greater percentage of affluent customers agreeing with the statement that ”banks take advantage of poor people”.

The lower income earners are less trusting of banks in general and feel that banks do not treat them with respect. Interestingly, the affluent have a much bigger beef with bank fees, with 33% agreeing that bank charges are too high compared to only 21% of lower income respondents.

Yet, considering how small the incomes are of people below LSM 6, bank fees do have a far bigger impact. Napier believes that this low figure is due to a lack of awareness about banking fees. ”While not having a job or money is the main reason for not banking, bank fees are still an issue.” Napier points to the fact that 10% of people who closed their bank accounts did so because they could not afford the fees.

Another anomaly in the survey is that when questioned about product types, 48% of respondents said they had an ATM card, versus 15% who said they had a debit card. The reality is that all ATM cards are debit cards. It would appear that this is a major area of education, as using a card at point-of-sale to make a purchase or draw money is cheaper and safer for customers.

According to Theo Nell, manager of payment systems at Absa, the bank is on a campaign with Visa international to educate customers about the use of debit cards and to get rid of the name ATM card. The fact that the majority of people see their card as simply a way to draw cash could explain why 41% of banked people draw all their money as soon as it is deposited into a bank account.

According to the survey, 71% of respondents cite savings as the primary reason for having a bank account. Yet, ”although savings is the reason with the highest mention, few South Africans actually manage to save. Therefore, overclaiming seems to be fairly high, or saving is perceived differently to how we see it.” This ties in with the fact that, in the survey, levels of debt appear to be understated. The survey shows that 84% of people ”hate owing money to anyone” and 49% say they have not and will not borrow money.

But Allister Long, MD of LifePower, a company that provides financial literacy training to corporates, argues that far more than 50% of the population has some form of debt. ”You just have to look at our low savings rate to know that people have debt.” In his experience, people do not save for larger expenses, such as school fees or furniture. They prefer to take out loans to pay them.

The survey shows that the majority of South Africans borrow money for food and funerals, followed by school fees. What is also alarming is that 7% of loans are taken out to pay off other debt. This is particularly high among the white population, which tends to have higher income levels.

After buying a house or car, paying off other debt is the third biggest reason for taking a loan. Napier says credit card extension has doubled in the LSM 7 range. This would suggest that over-indebtedness is a problem across the income spectra.

The increasing interest rates are already taking their toll. According to Long, the number of summonses has increased by 10% year on year. He says that, based on the companies he is dealing with, there has been an upsurge in garnishee orders (where a portion of a person’s salary is attached). ”In one company we had 500 garnishee orders on a payroll of 1 100 people.”