The defence against recession

South Africa’s banks survived the recent global economic meltdown better than their international peers. But the country’s citizens suffered as the two-year-long credit crisis obliterated jobs, decimated net disposable income and triggered a surge in home and motor vehicle repossessions. How does one survive recession?

The best way to survive a recession is to own more than you owe ...
This is nigh impossible in a world in which materialism trumps common sense. As soon as we set foot on the employment ladder, we’re knocking at our bank manager’s door for loans to buy houses and motor vehicles. We also apply for credit cards and purchase non-essential luxuries on the buy-now pay-later plan.

“A vibrant and growing savings culture is a prerequisite to strong economic growth,” says Peter Dempsey, deputy chief executive of the Association for Savings and Investment South Africa.

Savings help consumers to fund future financial commitments without taking on additional debt. At the same time, consumer savings are also the source of capital used by companies and the government to fund growth opportunities through infrastructure and manufacturing development.

“We need to get the message across to people that the immediate, visible benefit of saving money is their own financial security,” said Dempsey.

South Africa celebrates National Savings Month in July each year. Stakeholders in the financial services industry use the occasion to educate citizens about the merits of saving and encourage them to “save today and own tomorrow”.

The Banking Association of South Africa believes that financial literacy is the core platform on which financial inclusion is built, and that saving is one of the cornerstones of financial literacy. And, although they welcome National Savings Week, they add that the savings “gospel” should be “preached” 365 days a year.

“Financially savvy consumers are more likely to save their money, compare financial products and services and discuss money matters with their children,” they say. If each of us takes charge of our day-to-day finances, we can secure a better future.

“Saving is all about discipline and people spending less than they earn,” says Elias Masilela, a principal board member at the South African Savings Association. “People have to adjust their lifestyle and the manner in which they live so they can accommodate the redirection of income into a savings scheme.”

Dempsey agrees. He says that the golden rule is to save first and to spend what is left. Too many consumers spend first and then find that there is little or no spare cash left to save.

The save-first approach requires a budget and a long-term strategy that will assist in determining the most sensible savings vehicle. Under most circumstances, however, it is important to pay off your short-term debt first. Make sure your credit cards and other personal loans are taken care of before considering traditional savings methods. It also makes sense to cover your risks by putting in place life insurance, disability and medical aid cover. Ideally, you should also insure your assets using short-term insurance.

You will be able to find a sensible savings product regardless of the amount you wish to save. You can begin with a monthly contribution to one of the country’s unit trust funds. And if you do not have enough for a monthly unit trust contribution, you can build up savings in a bank savings account. Dempsey cautions: “Just as you would consult a specialist before undergoing surgery, you would be well advised to seek the help of a qualified financial adviser before committing your money to an investment vehicle.”

Domestic asset allocation unit trusts offer a sensible solution for those investing without the help of a financial adviser. These funds invest in a mix of shares, bonds, money-market and property assets. Alternative savings products include the RSA Retail Bond (which offers great interest rates on two-, three- and five-year fixed investments) and retirement annuities.

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