The Old Mutual and Mail & Guardian Critical Thinking Forum, held in Johannesburg this week, centred around how to motivate the youth to break the negative savings cycle in South Africa.
The panel consisted of Cas Coovadia, managing director of The Banking Association of South Africa, Crispin Sonn, managing director of Retail Mass Cluster Business at Old Mutual, Yershen Pillay, chairperson of the National Youth Development Agency, Sinenhlanhla Nzama, product marketing actuary at Old Mutual, and Olano Makhubela, chief director of financial investments and savings at the National Treasury. The moderator was SAfm presenter Masechaba Mtolo.
“Government and National Treasury have identified savings as key to growing the economy of the country. But a significant percentage of young people remain unemployed, therefore, inroads need to be made to get them into the financial system and inculcate a culture of savings.
“While savings is a behaviour it is also a matter of discipline. If you struggle with discipline then savings is very difficult to maintain. We therefore need to drive financial education and inform the youth of the savings products available that meet their their needs,” said Makhubela.
Coovadia said that part of the challenge of achieving this is that the majority of youth rely on informal mechanisms to save.
“We have to communicate more effectively to the youth. This means that financial services organisations need to understand the language of the youth and speak to them on the platforms they use, such as social networks.
“They need to explain to them what products are available and demystify what the banks have become,” he said.
Sonn said that although communication holds the key, companies also need to understand why the youth behave the way they do.
“Certainly, there is an optimism among the youth that was not there in previous generations. Our parents were limited in the financial products available to them and they grew up with access to credit being more difficult and had to defer gratification until such time they could afford to buy luxuries.
“Today, the youth do not understand the long-term ramifications of their behaviour. When taking out loans, the focus is on the instalments they pay instead of the interest over the period of the loan. Education and communication go closely together,” he said.
Towards a savings culture
Nzama said that to say there was not a culture of savings among the youth would be incorrect because they are relying on informal schemes to save.
“As a young person, I feel that the banks and others need to better explain what financial products are available to me. It needs to be simplified because the youth want to see how savings would give them opportunities for the future.
“With two thirds of the population younger than 35 years, they have an important job to save for the development of the country. However, social factors will always impact on savings,” said Nzama.
And it is these social factors that financial services organisations need to bear in mind, said Pillay.
“Approximately 21.7-million young South Africans are unemployed or not benefiting from education. The country has a lot of work to do by investing in job creation and skills development.
“The challenge of savings need to be linked to the broader issues facing the country.
“The two prevailing cultures that prevent this from happening is that of being consumption-driven, thanks to aggressive advertising and a culture of dependence and entitlement. These need to be replaced by a culture of savings but we have to get all sectors involved to do so,” said Pillay.
However, Makhubela said that just because people are employed does not mean they know how to manage their money.
“Young people are changing jobs at a rapid rate. This means that they have to restart their retirement savings every time they join a new company. Adding to this is the optimism that works against the youth at times.
“So instead of thinking of where I will be in 35 years’ time, it’s a case of becoming a millionaire in ten years time and not having to worry about the future too much.
“As government, we need to work to ensure that people are educated on managing money but without being told what to do. With the assistance of the private sector we have to guide people on how to save.”
For this to work, Pillay feels that there needs to be a multi-pronged strategy in place across all sectors.
“We need skills development and skills transfer to be important components of this. There also needs to be a focus on financial literacy. Young people are trying new things to make ends meet so we have to collectively provide them with more opportunities to do so within an enabling environment.”
But whatever is done, the consensus is that a lot of work and education is needed to drive home the importance of long-term savings to the youth.
Youth optimistic about money
Lynette Nicholson, head of research at Old Mutual, presented the main findings of the Old Mutual Savings and Investment Monitor at the debate. The monitor focused on working youth (18 to 30-year olds) living in metropolitan areas in South Africa.
“The majority of youth surveyed are optimistic and think their financial situation will improve. Half of them live in Gauteng with 20% working in the public sector. Perhaps accounting for their optimism is the fact that half of them still live at home,” she said.
However, despite the optimism, Nicholson said that the youth have to cut down on their living expenses like all other South Africans because of the difficult economic climate.
“From walking to work instead of taking a taxi to not going to clubs and movies as often, the youth are relooking their finances. Some are even saving money to open their own small businesses.
“But for them, these small businesses are there to supplement their income and not be their only jobs. Trendspotter Dion Chang coined the term ‘slashers’ to describe a person that could be a marketer slash DJ slash yoga instructor.”
Not surprisingly, their financial goals for the next five years were to buy property, a car and open a business.
What about savings?
While almost half the youth do not contribute to pension, provident funds or retirement annuities, 63% of them use informal saving schemes such as stokvels. Some of the reasons cited is easier access to funds and no need to fill in forms.
“More than a third of youth feel that their children should take care of them when they are old. Having said that, almost half of them plan to support their parents.
“This is giving rise to the sandwich generation where youth provide not only for themselves, but also for their children and other family members,” said Nicholson.
This places a lot of pressure on this generation to take care of their family and to accumulate wealth.
“The youth of today is considerably different to their forefathers. They need to save while still bearing the responsibility of providing for others.
“What is concerning is that there is a very small percentage who are planning to save for the long-term,” she concluded.