A massive marketing push by the financial services industry is urgently needed, according to government figures. This call for more aggressive selling of savings and investment products comes from Stanlib, South Africa’s largest unit-trust company.
“The irony is that the nation has the greatest array of financial products in its history, but makes the least use of them,” says Kim Zietsman, Stanlib’s head of single-manager unit trusts.
The danger of low take-up of savings opportunities is highlighted in a summary of official statistics from Stanlib economist Kevin Lings, whose list shows:
- At -0,5%, the lowest level of net savings since South Africa started keeping these records in 1946.
- The highest level yet of household debt, with the ratio of debt to disposable income up to 73,8% in the last quarter of 2006 compared with 73% a quarter earlier.
- Household debt up by R142-billion in the year to December 2006 (mostly to buy new cars and homes), year-on-year growth of 24,3%.
- Total outstanding household debt of R728-billion by the end of 2006.
- Debt now equates to R56 000 per employee (including the informal sector).
The Lings study underlines the consumer’s growing vulnerability to rate rises or an economic slowdown — though neither eventuality is currently predicted.
Historically low levels of interest rates ensure that consumers are in no great financial distress at the moment. Judgements for debt remain low.
Kim Zietsman comments: “Figures indicate that marketers find it easier to sell the concept of getting into debt rather than putting a savings plan into place. This is understandable but unsustainable. Dis-saving is a disaster in the long term.
“The financial services industry owes it to itself and the public to stop being defensive about pushing financial products. Fica [Financial Intelligence Centre Act] legislation should create public confidence that prudently packaged products are being created. Fica should encourage rather than inhibit our marketers.”
However, legislation to protect consumers from inappropriate financial products may have resulted in attention on the risk of short-term loss. In contrast, the lost-opportunity cost of failing to get into asset classes like equities is rarely discussed. Equities are volatile, but have the best record of long-term gains.
Zietsman adds: “In the initial post-Fica phase it was natural for cautious asset allocations to come to the fore. But we can now see that total risk aversion carries its own risks. For example, values in a pure equity category like JSE industrial shares have quadrupled in four years — a class of unit trust that fell 38% over the six years before 2003. But investors who stay in the market ride out the losses make significant net gains.
“Our country is committed to poverty eradication. This requires long-term wealth creation. Equities grow wealth like no other investment product, yet we see lingering reticence about a strong marketing push.
“If wage earners can take on board R56 000 in debt, they can take on board the concept that long-term saving has to underpin these commitments. It’s vital we get this message across.”