South Africans saved R22-billion under their mattresses in the past 10 years and, combined with investments in their homes, South Africans now save R1-trillion in non-traditional savings vehicles.
Derrick Msibi, head of Old Mutual Investment Group South Africa, says while new flows into traditional savings vehicles such as retirement funds and bank accounts have been decreasing, savings in non-traditional investments have increased from 13% of the savings pool to 18% in the past 10 years.
Non-traditional savings include investment in homes, stokvels and grey money (undeposited cash). These figures are not part of the Reserve Bank’s calculations of our savings rate, but Old Mutual estimates they make up about R1,1-trillion of the total R4-trillion of national savings.
Equity in homes is not included in the national savings stock calculations. When the Reserve Bank calculates the savings rate it simply subtracts our expenses from our income.
However, our bond payments fall into the category of expenses. So, if for example a household saves R3 000 a month in a pension fund, but pays R4 000 a month into its bond, the homeowners are seen as net dissavers. Yet, with house prices doubling, investment in property has created a massive wealth affect.
South Africans who own property or have been investing in the equity markets have seen about a 40% increase in their asset wealth since 2000. Of the R4-trillion in the savings stock, almost half has come from strong markets. Total assets, as a percentage of after-tax income, have increased from 320% to nearly 420% in six years.
Msibi says although debts have increased, asset values have increased even faster, which has created a net wealth affect. However, this growth in asset wealth has favoured only those who already had created a savings base or owned property.
“If you have been a property owner, in formal employment and an investor in equities it has been extremely beneficial in the past 10 years. If you haven’t, heaven help you, your lot has just got worse,” says Msibi.
Rian le Roux, head economist at Old Mutual, says many South Africans are carrying enormous financial risk. First he argues that people do not fully understand the implication of defined contribution pension funds and that, if they do not save enough, their company will not bail them out.
He says those who have not been saving will have to save at double the rate because they have missed out on the enormous growth in assets. Yet figures show that new savings by South Africans are well below international norms.
For those who are investing, many have chosen conservative investments and have not benefited fully from the equity boom. The increase in savings outside the formal sector has meant a large portion of the population has not benefited from the wealth affect.
Finally, he argues that while on aggregate South Africa’s balance sheet looks positive, it is skewed to a few wealthy people who already had savings and that, for the majority, their balance sheets look very ill indeed.
Le Roux says people who believe that the equity in their homes will protect them don’t realise they still have to have a roof over their heads and that often downsizing into a secure complex is more expensive.
Paul Hanratty, MD of Old Mutual, says the research has shown it is the skewed demographics of South Africa that have the biggest effect on savings, rather than this image of a consumer on steroids.
In most societies savers fall into the 30- to 50-year-old category, while the spenders are younger than 30 and people over 50 start drawing on their savings.
In South Africa we have a far higher percentage of people under the age of 30, due in part to the effect of HIV/Aids on the population and to emigration. Skilled South Africans over the age of 30 are leaving the country and would normally be the ones contributing substantially to the savings pool.
“By 2025 younger people will move into savers and savings will increase. But for a long time we will sit with a problem,” says Hanratty.