SA grapples with low savings rate
In order to encourage South Africans to save more, the government has made July our National Savings Month. But what is it that stops us from saving? Liziwe Ndalana investigates
As young people, when we spend money on expensive cellphones and shoes, as we often do, we undermine our ability to create wealth.
With easy access to credit and the “I want it now” culture, it is becoming almost impossible for the youth to save.
According to Hugh Hacking, the head of retirement fund solutions at Old Mutual Corporate, while individuals recognise the importance of education for long-term prosperity, the same connection has not yet been made in people’s minds around saving and wealth creation.
“You can be as educated as you want, but if you are in debt, that will erode long-term financial stability. If you want to create intergenerational wealth, you have to have a savings plan,” says Hacking.
Jason Garner, a Management Consultant at Ascis, says consumers should reassess their savings habits, as well as their financial plan, regularly in order to ensure that what they are putting away is in fact enough in the current economic environment.
According to Garner, not only do we take our actual money and spend it, but we often spend money we do not have.
At other times, we spend money that we are still yet to receive.
“There’s a tendency towards instant gratification. This culture works against any effort made to encourage people to save. We tend to compare ourselves and wanting things other people have,” says Garner.
We like to appear successful by spending the money we don’t have now and spend it before we actually have it and, in so doing, we create a problem for ourselves later in life.
What we don’t realise is that life becomes expensive as we grow older, with more expenses, such as healthcare.
This means that if you do not plan for your future, your children will have to take care of you when you are older.
This behaviour creates a burden for the next generation.
Garner says government needs to do more to encourage South Africans by educating them on the rewards and benefits of saving for retirement.
People need to stand up and start taking responsibility for their money and save for retirement.
Education on the importance of saving and rewards is essential in instilling the culture of saving.
Saving should also be made part of the curriculum at school level to instil this culture of saving from a young age.
Educating South Africans about their consumer rights, as detailed in the National Credit Act (NCA), needs to take place.
Government should do more to educate the public and communities at large about their rights, using the NCA as a vehicle to drive this message of saving home.
The responsibility lies with three stakeholders in accomplishing the goal of getting South Africans to save – government, the financial industry and individuals.
Government needs to make information more accessible to the public to provide further education around financial literacy.
The financial services industry should be more transparent and fully disclose information to consumers in an accessible and easy to understand manner.
Finally, consumers should be clear about how they are managing their money.
They need to realise that when they buy things now, especially on credit, they jeopardise their chances of creating wealth for themselves in future.
Garner says: “Government can also help by enforcing a legislation that will make it more difficult for people to access their retirement savings and pension funds before retirement.
“The legislation that is currently debated in Parliament will help these people who are not disciplined to save, even though they know the implications of not saving.
“It is our responsibility to make sure that we spend our money wisely. We want government to facilitate us to save and educate people to save more, but we don’t want government to force people to save. Instead, government should give more incentives to help people to see the benefits of saving.”
The youth in particular do not save, especially now that they have more opportunities to change jobs in their working lives.
Surveys show that the youth today will change jobs seven times in their working lives, yet many young people cash in on their pension funds whenever they leave or change employers to splash out on a car or go on holiday, thinking that they are too young to worry about retirement.
“When you change jobs, you need to engage with a qualified financial adviser to guide you on what you should do with your pension or retirement savings, and help you understand the consequences if you spend it now as it was reserved for future use,” Garner cautions.
Carel Botha, a certified financial planner at Ultima Financial Planners, says saving is a sacrifice that has long-term rewards.
“When you save, you are giving away a certain status and luxury in order to have them later. Deterrence to saving is the misconception that you need an enormous amount of money, but you need to start small and start early. It’s a perception people have that ‘I cannot save until I have enough money’,” says Botha.
People need to start saving at least 10% of their salary.
People who started saving late should start small as it may be intimidating for them and result in not saving at all.
They should start with at least 5% and also use their yearly increases to make up for the time they lost.
“We need to look at people who are closer to us, for example, our parents or anyone who has fallen into financial trouble.
“We should learn from anybody who has fallen into a debt trap by not planning properly and managing their money well.
“Financial planners should also do pro bono work in educating their clients. Financial literacy is key in developing personal money management skills,” says Botha.
When the youth enter the job market, they do not think about saving as they tend to think that they are still young and still have enough time to save.
When they start thinking about saving, they realise that it’s too late.
By this time, they are required to save about 20% of their salary, which becomes almost impossible to do.
The real issue is that young people just want to “enjoy life”, live in the now and not worry about saving.
This thinking is problematic as it leads to the current number of only 6% of South Africans who retire comfortably.
“Starting early is the cheapest way of saving because you will have to save progressively more, the longer you delay saving,” says Botha, who adds that China instilled a culture of saving a long time ago and this has made it one of the largest economies in the world.
Tip of the week
Retirees will be encouraged to use all their retirement fund and retirement annuity savings to buy a pension if Parliament passes the latest tax law amendments.
The National Treasury released the 2012 Taxation Laws Amendment Bill for comment last week and one of the proposals is to require an individual to use their full retirement fund to purchase a tax-free annuity (monthly pension) and to no longer provide a tax-free lump sum.
Five ways to find money to save
Research shows that people tend to overspend on entertainment.
Try renting DVDs instead of going to the cinema or the theatre.
It works out much cheaper.
Cut down on eating out.
Cook at home and invite friends over instead of going to a restaurant.
You can also organise a bring and braai.
That way everyone contributes something.
Everyone can cut back on cellphone use.
For example, buy a bulk SMS package rather than making calls.
Work out how much you can afford to spend and buy prepaid airtime.
When that airtime is used up, it is gone – don’t buy more.
You may find this difficult in the first month or two, but you will work out how to budget your airtime better.
3. Bank charges
Speak to your bank about the best account for your needs.
You may find that opting for a monthly fee for a range of transactions works out cheaper than your current pay-as-you-use.
Also, use cellphone banking to check balances.
Most banks do not charge for this service.
Find a balance between paying down your debt and saving.
For example, if you have managed to find R300 of savings by cutting back on entertainment, cellphone and bank fees, pay an extra R150 towards your debt and R150 into a savings account.
5. Save your lunch money
Fred Brock, author of Live Well on Less Than you Think (R153 on kalahari.net), says we should actually save what we save.
If you get a discount by flying kulula.com rather than SAA, take that saving and put it into an account.
If you cut back on smoking or have one less coffee out a day, transfer the savings.
You will be pleasantly surprised in a year’s time.