Are you putting your savings in the right places?
As a nation we’re working hard at saving rhinos, saving electricity and (with summer coming up) saving our skin from the sun’s effects, but when it comes to setting aside money for a rainy day, not so much! However, says the South African Savings Institute (SASI), it’s not all bad news. The Institute cites a lack of financial literacy, consumerism and unemployment as issues hampering savings efforts, but the cash saved through our pension funds and informal savings is to be celebrated. So, how much do you save compared to the “average” South African, and are you saving in the right places?
We are among the worst savers in the world…
The Financial Services Board (FSB) reports that an average of only 2% of household income goes towards savings and investments. This supports the numbers that only 6% of South Africans are financially independent when they retire; the rest are usually dependent on their families, friends and the government.
SASI reports that as of the end of March 2016 the official savings rate was 15%, our household savings rate was 1.1%, and our debt as a percentage of disposable income was 76.6%. Stack this up internationally? China has a gross saving rate close to 50%, India about 30%, Brazil around 25% and Australia 22.5%. Grim, sure, but it’s an improvement on previous numbers that showed that debt to disposable income was 80% and savings were below 1% previously in South Africa.
We’re saving in all the wrong places…
The Credit Suisse Emerging Markets Consumer Survey 2016, in a report compiled by research firm Nielsen, and featured in Businesstech.co.za, showed that three in 10 South African respondents said they had no extra money for saving at the end of each month – this was down from 38% in the prior report, and also below the survey average of 32%. A whopping 60% of those saving said they were saving in a bank account and 28% as cash, so thereby not taking advantage of any profitable saving channels. (Note: that’s a lot of money sitting under mattresses!)
Savings clubs are on the rise…
Stokvels are an integral part of South African culture and deliver community and social benefits beyond monetary returns. Recent studies cited by the National Stokvel Association of SA (NASASA) reveal that there are more than 11.4 million stokvel members, who collectively save R44 billion per year. However, as the FSB reports, there are drawbacks to them. Most savings clubs do not have written rules or contracts (they are based on trust), you run the risk of other members not contributing, and in most cases interest is not earned. That’s a lot of cash not to be collecting interest.
Make sure your savings works hard for you
If you are working hard to put some money away every month, make sure your savings works hard for you, earning a return that beats inflation. And how do you get that return? Speak to a financial adviser, or investigate unit trusts where you can directly invest a small amount every month, while giving you a ready-made portfolio suitable for meeting your savings goals.