Fix fi­nan­cial stress to boost sav­ings

Afro Voice (Northern Cape) - - BUSINESS - LISA AIREY Lisa Airey is Old Mu­tual unit trusts’ strat­egy an­a­lyst

IN 2015 the na­tional Trea­sury looked to in­cen­tivise South Africans to save more by pro­vid­ing a re­bate on tax-free sav­ings ve­hi­cles, but the ma­jor­ity are yet to ben­e­fit from this ini­tia­tive.

A study by Fin­scope, a re­search tool used to as­sess the util­i­sa­tion of fi­nan­cial ser­vices, re­vealed that 69% of South Africans had ac­cess to for­mal fi­nan­cial ser­vices last year, show­ing a marked in­crease in fi­nan­cial in­clu­sion.

Lower to mid­dle-in­come South Africans, the in­tended tar­get mar­ket for taxfree sav­ing ve­hi­cles, are yet to ben­e­fit from this ini­tia­tive.

Against the back­drop of a high rate of un­em­ploy­ment and a low rate of for­mal ed­u­ca­tion, we need to view our low sav­ing rates in the con­text of com­plex so­cio-eco­nomic is­sues plagu­ing or­di­nary peo­ple.

Fi­nan­cial in­clu­sion looks to en­sure that all house­holds, re­gard­less of in­come level, have ac­cess to ap­pro­pri­ate fi­nan­cial ser­vices needed to im­prove their lives.

In 2005, the Fi­nan­cial Ser­vices Char­ter adopted a res­o­lu­tion to im­prove the coun­try’s ac­cess to for­mal sav­ing and in­vest­ing ve­hi­cles, in a bid to im­prove the fi­nan­cial well­be­ing of South Africans as well as ad­dress the coun­tries’ weak sav­ings cul­ture.

Re­cent sur­vey find­ings showed that only 15% of house­hold in­come is al­lo­cated to­wards sav­ings and this dis­crep­ancy sug­gests a sys­temic prob­lem.

The fi­nan­cial ser­vices sec­tor in­vests mil­lions each year in ed­u­cat­ing the pub­lic and its clients on the value of tax-free sav­ing ve­hi­cles. How­ever, to in­crease house­hold sav­ings across all in­come lev­els, we’ll need to ad­dress a num­ber of key is­sues.

De­spite ea­ger­ness to learn about bet­ter money man­age­ment, South Africans dis­play low rates of fi­nan­cial con­fi­dence when it comes to mak­ing sav­ings and in­vest­ment de­ci­sions.

In­vest­ing con­tin­ues to be seen by South Africans as a com­plex world and lower in­come earn­ers tend to feel less con­fi­dent about mak­ing fi­nan­cial de­ci­sions and feel con­fused or in­tim­i­dated by fi­nan­cial ser­vice providers and the op­tions avail­able to them.

The Old Mu­tual Sav­ings and In­vest­ment Mon­i­tor has shown that in­vestors con­tinue to feel that fi­nan­cial ser­vice providers com­pli­cate their of­fer­ing. Over sev­eral years, less than 50% of re­spon­dents in­di­cated that they know a lot about fi­nan­cial ser­vices while more that 40% said that they are al­ways look­ing out for the lat­est fi­nan­cial ser­vices prod­ucts.

An­other big con­cern is the high rate of in­debt­ed­ness ex­pe­ri­enced by South Africans.

The Mon­i­tor re­vealed that South Africans spend 16% of house­hold in­come on pay­ing back per­sonal loans and credit cards. This leaves lit­tle dis­pos­able in­come for sav­ing and in­vest­ing.

Debt lev­els and fi­nan­cial stress con­tinue to be closely linked. The Mon­i­tor re­vealed that 64% of re­spon­dents de­scribed their stress lev­els as “over­whelm­ing” with a higher con­cen­tra­tion in low-in­come house­holds.

Lastly, de­spite ac­cess to a widened so­cial grant net, the poverty rate in South Africa has in­creased from 53% in 2011 to 55% in 2016.

All these fac­tors, low rates of fi­nan­cial con­fi­dence, in­debt­ed­ness, and poverty, cre­ates a vi­cious cy­cle leav­ing South Africans with just enough money to make ends meet, but in­suf­fi­cient means to build any form of fi­nan­cial re­silience or wealth.”

Only through pub­lic-pri­vate part­ner­ship can we hope to holis­ti­cally ad­dress the un­der­ly­ing so­cio-eco­nomic prob­lems that drive our poor sav­ings cul­ture.

While sound pol­icy and the in­tro­duc­tion of tax-free sav­ings and in­vest­ment ve­hi­cles are a step in the right di­rec­tion, the fi­nan­cial ser­vices sec­tor will need to aug­ment its of­fer­ing to meet the needs and chal­lenges of or­di­nary South Africans.


‘TOO TAX­ING’: In­vest­ing is re­garded by many South Africans as too com­plex to han­dle.

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