/ 8 August 2012

Turning South Africa into a nation of savers

Panel moderator David O' Sullivan currently hosts "The Afternoon Drive" on Talk Radio 702 and also works as a sports broadcaster. He holds a law degree from Wits.
Panel moderator David O' Sullivan currently hosts "The Afternoon Drive" on Talk Radio 702 and also works as a sports broadcaster. He holds a law degree from Wits.

But what can one do to establish such a mindset?

"While the responsibility of saving lies mainly with parents, schools also play a role. To save is an important life skill to have so one needs to look at the current curricula at primary and high schools and see how to incorporate that facet better.

"To simply equate savings to income is not correct as there are plenty of households where people do not earn a lot but still encourage the importance of savings.

In these households, finances are discussed with children and they learn from parents leading by example," says Professor Sarah Gravett who specialises in educational management at the University of Johannesburg.

As a parent of two young children, Claude Barnes of Claude Barnes Chartered Accountants, feels that parents do play an instrumental role in teaching their children the value of money.

"While my children are still quite young, the plan is to start them with pocket money so they can buy things like toothpaste, deodorant, and other necessities for themselves. Once they enter high school, I intend to start a small share portfolio for them and evaluate it with them on a monthly basis and look at how best to grow it," he says.

Advocate Clive Pillay, the Ombudsman for Banking Services, says that as part of their social responsibility they are involved in the banking industry's savings initiative to teach children to save money and understand the value of money. It is a case of differentiating between 'needs' and 'wants'.

"Earning money by doing small chores around the home is another way of instilling the value of money in children, showing them that hard work can lead to monetary rewards," he says.

He agrees with Gravett that savings education should be done at home and at school. School provides a more formal and structured approach that could be practised while demonstrating and enforcing responsible spending habits should be part of everyday parenting at home.

Buy now, pay later
For Barnes, the key is to not feed into the instant gratification mindset but to set small goals for his children. Most importantly, he feels that teenagers from grade 10 need to be taught the power of compound interest and the dangers of debt.

"Generally speaking, people trapped in poverty struggle to get out of the cycle due to a lack of education. Children need to be taught the value of money and understand the risks associated with getting easy access to debt," he adds.

Gravett agrees that instant gratification has become a problem that is a worldwide concern to saving effectively.

"We buy what we want now and do not think about the consequences of doing so. Community organisations have an important role to play in helping people of all ages understand the importance of setting money aside. Currently, young people are too easily influenced by brands and the emphasis society puts on status related to buying the best labels," she says.

One way to change the instant gratification mindset is focusing on the benefits of investments and saving, says Pillay.

"This needs to be focussed on by the media and advertising industries. For example, instead of financial institutions promoting loans and other credit facilities, they could promote unit trusts and competitions could be based on rewarding people for saving money," he adds.

Peter Dempsey, deputy chief executive officer of the Association for Savings and Investment South Africa (Asisa), agrees that finding creative ways to stimulate savings should be a priority.

"Yes, education is important because children will pick up on the good (and bad) habits of their parents. But that is just one part of what is needed. Thinking about the savings problem in a creative way and getting people into the savings habit by offering them some sort of benefit should be part of the approach."

Educate the nation
If emphasis is placed on living within one's means, then people from all income groups will find that there is money to be saved instead of spending it on unnecessary items.

"It is the action and culture of saving that matters and not only the amount that one puts away. Changing this would influence other spheres of our culture, such as consuming less electricity and water which would result in lower household overheads in the long run," says Pillay.

And the responsibility of creating this savings culture should be carried by everybody, says Mohale Ralebitso, director for marketing, communications and corporate affairs at Old Mutual Emerging Markets.

Start now

"We need to challenge and encourage ourselves to start saving. People need to focus less on consumption and more on saving. And while more can be done to package savings schemes better, we cannot wait for the perfect solution before we start saving," he says.

Ralebitso feels that creating a culture of savings needs to address problems that are rooted deep in society. By having a greater systemic intervention that speaks to the nature of the problems people have, people start to understand that savings behaviour needs to go on irrespective of the economic conditions experienced.

But even government actions like interest rate cuts have an impact on the creation of this savings culture.

"On the one hand, you encourage people to pay off their debt by reducing the interest rate but then you have those people who saved who get penalised with lower interest rates. The savings culture within workers is a difficult one. People do not have money to save due to the cost of transport in getting to and from work and putting food and water on the table," says Koos Bezuidenhout, president of the Federation of Unions of South Africa (Fedusa).

He believes that most people would like to save and be responsible for their own retirement and not be reliant on government or their children to look after them, they just need a mechanism to do so.

Establishing saving schemes
Ismail Momoniat, the head of the tax and financial sector policy division at the National Treasury, says that the challenge is not only in getting people to save but also in getting them to preserve those savings.

"People tap into their savings for a variety of reasons. I agree that we need to have tax incentives in place to get people to save more. But we also need to make it more difficult for them to withdraw funds from their savings. This is a naturally sensitive issue as people lose jobs and might need quick access to their funds," he says.

For Momoniat, government has to work with the unions and other stakeholders to get savings schemes in place.

"It will be a long walk to get people to save but this is the course that has been embarked on. We need to prompt people who have saved to keep their funds but we do not have all the answers," he adds.

Ultimately, creating a savings culture in South Africa seems to be reliant on all the stakeholders working together and educating young and old alike about how best to save and to preserve those savings for long-term benefits.