Savings wake-up call for South Africa
It is an open secret that South Africans are notoriously bad savers. At a <em>Mail & Guardian</em> Critical Thinking Forum held in Sandton this week, a panel of experts looked at this issue more closely and discussed what should be done to encourage people to save more.
Rian le Roux, head of economic research at Old Mutual Investment Group highlighted one of the most sobering statistics of the evening by saying that, on average, people only save eight percent of their annual income. To be able to retire comfortably, this needs to increase to 20% or more of an individual's annual income.
Financial journalist and panellist Maya Fisher-French said savings is not about an individual's income but about what that person spends.
"I know domestic workers who save up to 20% of their monthly salaries.
Saving is a mindset. One only needs to look at other countries in a similar income bracket as ours to see why they are saving more. South Africans do not have to sit around and save for anything. Access to debt is far too easy so we can simply buy what we want on credit.
On the other hand, the savings market has become very complex. With more than 800 unit trusts, endowment policies and so on it is just too confusing for people who want to save.
"If saving money becomes as easy as taking out debt, then people will save more," she said.
Peter Dempsey, deputy chief executive officer of the Association for Savings and Investment South Africa (Asisa), agrees.
"Behavioural changes are required from people. Individuals need to relook their expenses and see which ones are justified and which ones are not. Just look at cellphone usage in the country. A person is quick to buy the latest and greatest smartphone but is it really necessary when the existing phone is working fine. Saving is an attitude. You can spend and use what is left to save or you can save and spend what is left," he said.
One of the issues raised by the panel was that countries that save well have education in place to make people understand the importance of savings. Many of these countries also make it easy for people to save. In South Africa, it is easier to gamble a significant amount of money than it is to invest R500 a month in unit trusts due to the sheer amount of forms required to be completed and other fiduciary requirements.
For Mohale Ralebitso, director for marketing, communications and corporate affairs at Old Mutual Emerging Markets, one of the key challenges to save is people's addiction to status and to artificially convey how well-to-do they are.
"The answer is not to reduce access to credit but to limit giving people access to the wrong type of credit. Financial institutions need to do better about educating people on the options that exist to save. One only needs to drive past any amount of billboards that promote consumption instead of savings. South Africa has become a culture of consumption and not one of savings. We need to educate children as well as adults on the importance of savings," he said.
Ismail Momoniat, the head of tax and financial sector policy division at the National Treasury, echoes this sentiment.
"As a nation, South Africans like to consume. In fact, consumption has gone up considerably since 1994 with people having access to things they did not previously have. However, people can find lots of reasons not to save. They are very short-term in their outlook and often do not worry about the long-term impact of not saving. From government's perspective, we are trying to nudge tax payers to save by giving them incentives but it is a fine line we need to walk if we are not to become too intrusive," he said.
But many people do not want to be confronted with the reality of their situation and ultimately they cannot be forced to save. However, one should consider the high cost of transport and the limited number of jobs in the country as mitigating factors for not saving.
"We will not succeed to encourage people to save if we do not change certain things in the country. A lot of people battle to make ends meet when the bulk of their money goes into public transport. We need to enable the majority of South Africans to get into a position to save. As it stands, people need to put food on the table, buy basic necessities, and get to work. This sees a lot of lower income people spend what little they have on Lotto tickets in the hope of winning something so they can get out of their current situation," said Koos Bezuidenhout, president of the Federation of Unions of South Africa (Fedusa).
Momoniat agrees that people have a number of valid reasons not to save using examples such as needing to take out medical aid, pay school fees, and contract security companies.
"If the public sector does not work effectively, it does create a knock-on effect for South Africans who now need to spend money on things that are paid by the state in other countries. Public servants need to be accountable for service delivery. But all of this becomes moot when there is still so much red tape around savings," he said.
The panellists agreed that making it easier to save should be a national priority. It should also become more difficult for people to access their savings in order to ensure that the money remains there for retirement. People should be incentivised to save more by getting higher returns on their investments.
<strong>Getting savings done right</strong>
Old Mutual's Le Roux agrees that people are saving way too little. "We must do more to stimulate saving and investment."
"We cannot rely on foreign savings indefinitely. Just look at the situation in Greece and Spain. Saving very little now will have a significant impact on the economy in later years. People spend basically every cent they get but they need to save for future liabilities such as their children's education and retirement," he said.
A few years into their retirement, many South Africans discover that they have not saved enough. People assume that the money they pay into a pension fund will be enough but it is not the case anymore. Savings are driven by the ability the save and the willingness to save.
"Unfortunately, a lot of people have the ability to save but they choose not to do so. They confuse ability with the willingness to save. Once they retire, the nice lifestyle they currently enjoy cannot be afforded on their savings.
"People should not think if you have money to buy something that you can afford it. Only six percent of South Africans will retire comfortably," he added.
It seems that South Africans need to be shaken up and made to understand the importance of saving. It is clearly not something that can be put off but requires immediate and ongoing attention.