WHY OPTIMISM ABOUT SOUTH AFRICA IS NOT ENOUGH TO KICK-START A STRONG SAVINGS CULTURE

11 Jul 2018

Old Mutual research results reveal a nation in need of greater commitment.


South Africans are feeling more confident about the country’s economy and adopting better financial habits. Nevertheless, stronger commitment to long-term savings goals is still needed to turn the nation’s poor savings cycle around.

This is one of the findings from the 2018 Old Mutual Savings & Investment Monitor, released today, which tracks the shifts in the financial attitudes and behaviour of South Africa’s working metropolitan population.

“It is really encouraging to see that more respondents are setting financial goals (76% in 2018 vs 69% in 2016) and fewer are now considering themselves spenders, rather than savers (20% in 2018 vs 42% in 2016). Also, more are saying they plan for their finances five to ten years ahead and feel optimistic that things will get better financially over the next six months (43% in 2018; up from 37% in 2017),” says Lynette Nicholson, research manager at Old Mutual.

“However, we need more action to see this translate into results. While respondents still save only 14% of their income (in line with 15% in 2017), the reality is that their formal savings do not seem to cater for longer term goals, such as education, life, death or disability cover, or retirement.”

It remains concerning that only 43% of respondents save for their children’s education (down from 46% in 2016) with lower income households showing the sharpest decline to only 18% (down from 29% in 2017). Furthermore, 1 out of 3 Baby Boomers (those born before 1965) have made no formal retirement provision.

Using informal savings vehicles is still prevalent among black households, increasing to 61% (from 53% in 2017). Stokvels still top the list, ahead of burial societies, grocery schemes and unbanked cash savings.

However, the latest survey shows that while more respondents are saving with stokvels, the average contributions are declining, and significantly so among higher income households. The only exception is households earning below R6 000 per month, where the average contributions showed an increase. This correlates with the financial worries of lower income households, whose satisfaction level with their current financial situation is only at 4.4 out of 10 – the lowest level since the start of the survey in 2009. But it is not only satisfaction levels that point to stress. Respondents in all income categories said they were less likely to be able to cope with a financial emergency. For households earning R14 000 – R19 999 per month, 38% would not be able to deal with an emergency of R10 000, and even in the R20 000 – R49 999 per month household income bracket, 28% acknowledged that they would run into financial difficulties if an emergency arose.

Consumers remain innovative about creating additional income streams, and the latest results found a rise in ‘slashers’ (individuals doing more than one job). About 40% of respondents said they were looking at ways to supplement their income (up from 30% in 2017).

When it comes to making it to month-end, the latest findings showed an improvement, with 41% of respondents saying it happened at least once in the past year, down from 52% in 2017. When their money runs out, most turn to their friends or relatives for a loan, use their savings (if they have) or pay their bills late.

The increased cost of living is clearly biting hard, with 67% of households’ income spent on living expenses (up from 62% in 2017). There seems to be an awareness of the need to cut back more on expenses such as DStv, food and groceries, although this is more prevalent in upper income groups, where there is more room to tighten the belt.

One trend that remains steady is the financial pressure on the ‘Sandwich Generation’, those respondents who have to support both their children and their aging parents (consistent at about 27%). A steady 38% of respondents still have expectations that their children will provide for them in old age. A new question in this year’s survey which asked the ‘Sandwich Generation’ about the kind of financial support they are providing revealed that food and groceries were the most common form of assistance, followed by funeral expenses and medical expenditure.

On the topic of debt, respondents have relied less on personal loans from friends or family (down from 13% in 2017 to 10% in 2018) or a micro-lender (down from 6% in 2017 to 4% in 2018). “Furthermore, we find that more people are ‘trading down’ or changing to cheaper brands, and they cope by delaying some plans – like buying large household appliances and doing home maintenance or renovations,” says Nicholson.

A high number of respondents acknowledge that money issues are a major source of stress in the household (41%), and most are keen to learn more about ways to save (80%).

“These are sobering pointers in our 2018 survey results and should encourage more South Africans to commit to responsible financial habits, and improve their financial understanding. We believe ongoing financial education helps people to ‘Know Better, Do Better’, which is our action line. Hopefully this can become a trend,” concludes Nicholson.