South Africa is experiencing enormous economic change, which is resulting in the birth of a large middle class. This group is characterised by high levels of consumerism and in that way South Africa is following a fairly predictable path.
But we also have our own unique set of circumstances that makes it difficult to plan for the future.
Shop ’til you drop
As a large portion of any population becomes more economically active, it will spend more on consumption. A mature economy with a well-established middle class will be debating whether or not to buy a new toaster or save for retirement.
For an emerging middle class it becomes a debate between whether or not to have a toaster. South Africa is at the accumulating phase of economic development.
Behavioural psychologist Merle Friedman of the Peopletree Group says this development also ties in with the psychology of how people respond when they have access to things that were previously beyond their reach. For example, studies show that people who have starved will never leave home without food in their pocket. In the same way people who have been deprived will over-indulge because they can.
They will purchase those things that their parents could never afford. It is only when the next generation of the middle class is born that the need to acquire will abate to some degree.
Carefree population
Demographics also play an important role in our national attitude to savings. Friedman says research shows that the older you are the more important savings become.
It is usually when you have children that you start to worry about the future and as you get closer to retirement the issue of retirement funding becomes a priority.
In South Africa 70% of the population is under the age of 35 — at this age we are in the consumption phase of our lives. Friedman says this is exacerbated by the fact that in general couples are having children later in life.
Two decades ago couples would have children in their late 20s; today many are only starting families in heir late 30s.
Not only is this delay in starting a retirement fund having a negative impact on our country’s overall savings rate, it is also one of the biggest reasons South Africans will be under-funded in retirement.
Uncertain future
Over time issues such as demographics and the need to accumulate assets will lessen and South Africa will start to mimic the middle classes of other more developed nations.
But it is the perception of our future that will have the most damaging long-term effect on our savings. I was speaking to a security guard recently and asked him if he had tickets to the World Cup.
He said there was no point spending the money now because he may not be alive next year. He said this without any irony; for him it is simply a fact of life.
He has no idea what his future holds.If this man cannot see his future one year ahead, how can you ask him to plan for the next 20 years? This uncertainty about the future cuts across all demographics and income bands.
Higher-income earners may not be certain about where they will be living, younger people are seeing the devastating consequences of HIV/Aids and crime is something that has already traumatised people or created a fear of the future.
Friedman says people will only save if they have a goal or a plan they believe in, but because of South Africa’s traumatic past as well as our uncertain future, we struggle to visualise the future.
‘We tend to live for today, so our horizons become very short because we do not know what will happen tomorrow,” Friedman says, adding that trauma also tends to result in higher risk behaviour, which in turn reinforces the idea of living for today.
So when devising ways to improve the savings culture in South Africa, apart from national pension plans, the government’s agenda should include ways to create an environment in which a security guard feels positive enough about his future to buy a ticket for the World Cup, which is less than a year away.