The majority of South African households are caught between their limited incomes and the deep desire to save for their own financial future and that of their children.
That’s a key recurring finding of the latest Old Mutual Savings and Investment Monitor, now in its eighth edition.
It is particularly disheartening that 36% of respondents are saving less than they were a year ago.
South Africa is now at a point where each one of us should view saving as a necessary obligation. Our future, our children’s future and the country’s economic future depend on our ability to improve the savings culture of South Africa.
The saving behaviour and habits of individuals will impact directly on the long-term growth and economic prospects of our national economy.
Strong national savings can reduce the need for inflows of foreign investment and enable the economy to capitalise on opportunities for economic development.
In South Africa’s case, that economic growth is the foundation for much-needed social development.
Recent global economic events have shown just how important it is to save wisely. The hardships and conflicts within the EU highlight the dangers of ineffective savings.
Guiding South Africans on how to save
About 80% of those polled in the Old Mutual Savings and Investment Monitor indicated they had a deep-rooted desire to learn more about how to save.
The financial services industry has put a number of initiatives in place to address this. Old Mutual’s financial education team uses the imagery and characters of the Big Five animals to clarify money issues and to show people how to start the saving process.
It’s called the “Old Mutual On the Money” financial education programme and it covers the basics of effective money management in a visually memorable way.
The lion teaches us the importance of good habits. If you commit to an automatic fixed savings plan, you will change your spending patterns.
Even if you start small, you will develop a savings habit. Once you have developed this habit, it will be easier to increase your savings over time.
The leopard teaches us that you need to have a clear idea of what you are saving for. At the same time you need to be realistic — the leopard always aims for things it knows it can get. When it is young, it firsts learns to stalk easy targets. As it grows up, it becomes more experienced and targets bigger animals.
The elephant presents a lesson about the power of knowledge. You need to know exactly what you earn, and exactly where your hard-earned money is going each month.
A great secret of wealthy people is that they take control of their earnings and expenses. Knowing what you earn, what you owe and what you spend on a monthly basis will help put you in control of your finances.
The rhino helps us tackle one of life’s most difficult challenges: debt. Debt itself is not a bad thing if you can borrow carefully as part of a bigger plan.
The sad truth is that many people get into debt without thinking about its dangers and pitfalls.
Credit is easily available, and it can lead you into a cycle of buying on credit at high interest rates and then using most of your income to pay it off. The rhino teaches us to face debt head-on and repay it as fast as you can.
The buffalo urges us to invest and grow our money with credible financial institutions. Choose investments that suit you and stick to them. If you invest for a long period of time your investment not only grows each year, but also grows exponentially, thanks to compound interest.
This means that you not only earn interest on your initial investment, but the interest gets added each month or year to the initial amount, and you earn interest on that interest as well.
In times of economic uncertainty, it’s important for people to seek trustworthy guidance, and to be equipped with the appropriate advice and tools to help them realise their goals and dreams.
South Africa’s savings levels are low compared to our peers in other emerging markets.
As a percentage of gross domestic products, the South African savings rate is at 16.5%, compared to China at more than 50%, India at more than 30%, Russia at close to 30% and Brazil at more than 18%.
Although the savings levels of the other Brics members are trending upwards, South Africa’s remain low.
These statistics alone demonstrate the urgency of a collective savings effort from all South Africans.
Crispin Sonn is the managing director of the Mass Foundation Cluster at Old Mutual