Painless saving for the future
In 2014, the Savings and Investment Monitor survey found that about one-third of South African “baby-boomers” – those born between 1946 and 1964 – have made no formal provision for their retirement, with 46% believing that their children should care for them. A further 63% of all South Africans are expecting to support family members when they are old, and yet 30% have not seen a financial advisor and a staggering 30% don’t budget for the future at all. It’s not hard to see why South Africans have been labelled as among the worst savers in the world.
Preparing for the future through formal savings accounts such as retail bonds or retirement plans is an essential, not a luxury, and South Africans need re-assess their spend and budgets to ensure that they start saving. The FinScope SA 2013 Consumer Survey underscored the problem: it revealed that 58% of adults are not setting any savings aside, and 12.5 million South Africans are experiencing financial difficulties.
Research undertaken by the FNB Savings and Investments team found that 92% of those who do not have savings agree that this is important, even though only 44% of those taking in a salary have any form of long term savings or retirement product in play. One of the issues is that many people don’t understand the solutions on the market and are unsure of how to effectively take advantage of them. Inflation only adds to the problem.
Many families earn below the R250 000 threshold, which places them at a financial disadvantage; they often dip into retirement savings in order to stay on top of monthly expenses. Household debt is also a concern. Recent figures show 57% of South Africans are experiencing debt delinquency, compared to 35% in the United States – and the latter figure is still considered uncomfortably high. Then there are the twins of procrastination and trust. The former finds people filing savings under “I’ve got time” and the latter impacts their ability to hand over hard-earned cash to someone they don’t know, for a product they are not entirely sure they understand.
Fortunately there are solutions that have been designed to help South Africans adopt a more focused approach to saving their money. The government and financial fraternity have been working on cultivating a culture that encourages people to save, rather than relying on government or family to see them through their old age and those cliché-riddled “rainy days”.
In 2004, the National Treasury launched the RSA Retail Savings Bonds that come in two flavours: fixed interest and inflation linked. The bonds were developed to encourage households to start saving through a product that delivers guaranteed returns, comes at an affordable cost and isn’t weighed down by additional fees. They can be purchased for as little as R1 000 and give their owners complete control over their own savings portfolios. Instead of a third party investing their money, consumers can manage how much they invest, and they get competitive rates. Individuals now have access to benefits that were originally only the remit of businesses and corporations.
The fixed rate retail savings bonds have rolling maturities over two, three and five years with a fixed rate until maturity. Consumers can invest anything from R1 000 to R5-million, and they can do so easily – the bonds purchasing process has been made as simple as possible to ensure a limited barrier to entry and a seamless integration into a savings mind-set. They can be bought online, in person and over the phone. The inflation-linked retail savings bonds were introduced in 2007 and these have three, five and 10-year maturities and are inflation protected. Interested parties can invest anything from R1 000 to R5-million.
The goal of Retail Savings Bonds is to give people an alternative investment route that’s secure and reliable, with good returns. This allows South Africans across most income brackets to create their own financial security, empowering them to make good use of their money over the long term.
The National Treasury has embarked on education initiatives through the retail savings bonds to encourage South Africans to pass on a legacy of saving to their children. The bonds available are affordable and are not age restricted, which means parents can use their money to purchase bonds for their children and give them access to their accounts. It gives the younger generation a very clear window into the savings world that encourages them to learn more about how money can evolve and how to use it to prepare for their education, first home and, one day, for their families.
In a world where economies dip and dance and money is often a daily concern, savings can make all the difference in creating and maintaining a comfortable, secure future.
To find out more about Retail Savings Bonds click here