We also have around 40% unemployment, low disposable income growth, low economic growth and rising tax burdens.
Among working South Africans, high inflation previously created a mindset of "Buy now, before prices rise" and buying on credit rather than saving. Not saving now appears to be an ongoing trend.
Household savings as a percentage of gross domestic product (GDP) have also declined sharply over the last 15 years. That decline is a concern, because it has a critical impact on future economic growth.
What makes savings an issue of national importance is that savings can provide capital for investment in productivity, technology or production capacity, which in turn can drive economic growth. South Africans' propensity to spend is seen as a structural deficiency, which is preventing us from increasing our capacity to produce.
Minister of Finance Pravin Gordhan is on record as saying, "As a country, an entrenched savings culture can help us to meet our investment goals and borrow less from other countries and their investors. This would, in turn, boost economic growth and create jobs for the millions who are currently unemployed."
To finance the shortfall between savings and capital formation, South Africa has become increasingly dependent on lending from the foreign sector.
However higher savings levels would benefit South Africa in at least four ways:
- Households would be less vulnerable to rising prices and unpredicted income changes.
- Individuals' ability to pay deposits for large assets like homes would be boosted, and wealth accumulation facilitated.
- The burden on the government to provide retirement assistance would be reduced.
- The government's dependency on foreign capital would be lessened.
The current global concern around huge and growing government debt levels has, in effect, highlighted the need for individuals to save more. Because an early casualty of fiscal tightening has been social security, consumers worldwide are having to accept that governments will not be able to provide much support during their retirement years.
This means that people need to plan to provide for themselves and increase their savings during their working years. South Africa, while less constrained fiscally than many of the eurozone countries, for example, will be no different in this regard.
"It is clear that South Africans are generally feeling very unsure about the economy and its implications for their personal finances. This climate of doubt leads many to postpone committing to saving. Unless this is immediately addressed, the long-term consequence is that many working South Africans will face economic hardship later in life," says Mohale Ralebitso, director for marketing, communicaitons and corporate affairs at Old Mutual Emerging Markets.
"Old Mutual initiated the biannual research of metro, working South Africans' savings -behaviour and attitudes to raise awareness and encourage the development of a national savings culture," says Ralebitso.
Among its findings, the Old Mutual's Savings and Investment Monitor showed that while most people are aware that it's essential to save and plan for their future wellbeing and financial security, many are unsure how to go about it.
"We are more serious than ever about financial education and generating enthusiasm for personal financial responsibility, because a positive outlook and clear vision, backed by definite financial plans, will enable South Africans to do great things with their hard-earned money," says Ralebitso.
Major findings of the Old Mutual Savings and Investment Monitor include:
- Many working South Africans are concerned about economic uncertainty and are postponing major financial decisions as a result. This can compromise your future security, because the earlier you start to save, the better. For example, the earlier you start, the sooner you reap the benefits of compound interest.
An increased number of metro working consumers plan to rely on the value of their primary residence to fund their retirement. This outlook rose to 14% from 5% in November 2011. Some homeowners believe they don't need to save as much for their later years because they can sell their homes, 'downscale' and live on the proceeds. It's unlikely to be quite that lucrative or easy.
Many working South African women have no provision for their retirement and are at risk of being financially deprived when they stop working. Furthermore, about half of single mothers polled indicated that they receive no financial help from their children's fathers. The survey reveals that mothers typically believe it's more important to save for their children's education than their own retirement. While it's natural for mothers to prioritise their children's education, the long-term effect of not saving at all for retirement cannot be discounted.
These statistics, released toward the end of Savings Month and shortly before Women's Month in August, indicate an urgent need to help women to move toward financial independence, neglecting neither their children's educational needs, nor their own retirement needs.
The Sandwich Generation is defined as those providing for their own financial needs, as well as being "sandwiched" financially between providing for their children's financial needs and providing financially to some degree for ageing parents. The latest measure for the Sandwich Generation is 23%, up from 20% a year ago. Nearly 60% of single mothers surveyed believe their children should care for them when they're old and 50% of single mothers feel the government should do so.
Savings questions answered
Saving is the best way to ensure that you continue to live in the lifestyle to which you are accustomed when you reach the non-working time of your life. It is also vital to save in order to make sure you get what you want and need with a sense of security and peace of mind when you retire.
There is a growing concern that there is an increasing level of dependency on either the government or your own children to care for you in your retirement stage of life.
This mindset risks perpetuating the plight of the 'Sandwich Generation' which refers to the generation of breadwinners that has to support both dependent children and dependent, ageing parents.
Budgeting is the best way to find out what you can afford based on how much you have. Differentiating between your needs and wants is the first step to saving. An accredited financial adviser is best suited to help you identify what your needs are by doing a financial needs analysis exercise with you.
How can South Africans be expected to save when times are tight?
It's more important now than ever before for people to grasp and embrace the basics, such as "paying yourself first" by saving money before you spend it.
We understand that financial trouble brings stress and can lead to all kinds of social issues, so helping people take control of their financial situation benefits individuals, families, communities and the entire nation.
Who can help me find the best way to save?
Always go to the experts for financial advice. These are the people who know the financial -services market and can help you identify what your specific needs are and help you match those needs with the best savings and investment solutions available to you, for the best long term benefit possible.
There are many accredited financial advisers and brokers and institutions in South Africa. They can help you work out the most beneficial financial plan for your future.
Old Mutual financial advisers are always at hand to help you with your financial decisions to ensure a safe and secure financial future for you and your family.
Contact Old Mutual's financial advisers on 0860 WISDOM (0860-947366) and start the journey to a healthy financial future.