Strong cultural pull of stokvels remains, savings monitor shows
• Incidence of working metropolitan dwellers who are taking out personal loans has decreased
It is always interesting when businesses talk to their book. Sometimes they aren’t even aware of it. Unilever employees would talk up the virtues of fat in the diet, much of which was conveniently provided by their margarines, such as Stork and Rama. And this was many years before fat fought back under Tim Noakes’s teachings.
Old Mutual is a bit more subtle with its Savings & Investment Monitor. Although there is an underlying focus on using Old Mutual products such as retirement annuities, funeral policies and tax-free savings accounts to save, chief researcher Lynette Nicholson has uncovered many trends about the country’s savings habits that don’t all follow Old Mutual’s playbook.
There is increased demand for funeral policies, in which Old Mutual is the dominant player. About three-quarters of the sample use the product. But an almost equal number still opt for informal savings, and they have been reluctant to bring these savings into the formal sector.
Formal institutions have tried to access these savings for decades. The old BOE launched a money market fund focused on stokvels 20 years ago.
But even as the market becomes better informed, the strong cultural pull of stokvels remains. Even the emerging middle class, which Old Mutual courts, has not developed a fondness for formal savings. In fact, 42% of black respondents earning R40,000 a month or more belong to at least two stokvels. As well as stokvels, which make up 53% of informal savings, 32% more is made up of burial societies and 16% by grocery schemes.
When asked why they saved through stokvels, 44% said it was to save for a rainy day, 43% to pay off debt, 31% to purchase groceries at month-end, 31% to buy furniture and appliances and 25% to save for education. It is certainly progress to see so many save for furniture rather than buy it at extortionate rates for in-store credit.
The good news in the report is that there has been a decline in the incidence of working metropolitan dwellers taking out personal loans, which fell from 21% of the sample in 2016 to 14%, while microloans fell from 8% to 6%. Fortunately, this has not been offset by loans from friends and family, which fell from 15% to 13%.
There is some increased realism, as the proportion who believe their children will look after them when they get old has fallen from 45% to 37%. There is still a stubborn one-third of the sample who say, against all evidence, that the government will take care of them.
But there has been a fall in some types of saving: just 44% of the relevant people in the sample are saving for their children’s education, down from 46% in 2016, and among the lowest income earners in the survey, with incomes of less than R6,000 a month, only 29% are saving. Parents might regret not being able to pay for education, as at least a matric or degree gives kids the ticket to leave home. The number of young adults of between 18 and 34 who are staying at home has increased from 42% to 49%.
Regarding Old Mutual’s hunting ground, Nicholson says 40% of people in the sample do not have a pension fund or a retirement annuity and therefore no formal vehicle for retirement savings.
At the event, Old Mutual launched a release entitled Today’s the Day, get Great Financial Advice. One load of advice, which may be a little tongue-in-cheek, is how to beat those dastardly retailers tempting you to spend money.
Store layouts deliberately disorient you, so you wander around spending more. I always wonder why long-life milk is on a different aisle to evaporated milk at my Spar, and the same is true of tissues and kitchen towels. Nicholson warns that limited-edition products are designed to create a sense of urgency. But by next week, you will wonder what the fuss was about the special Cadbury’s bars with cherries.
I have often wondered why the bread and milk aren’t at the front of the shop. They say it is to ensure customers buy more on their way to the back. I have to fight through the chocolate and chips to get to basics. One tip is to eat before you shop, so you don’t buy out of hunger.
Not that life insurers don’t create panic to build their own sales. Nicholson says be aware of the manipulation by retailers, as everything you see, hear or smell in a shop is designed to encourage spending. She obviously hasn’t shopped at my local cheese department — there’s nothing tempting about the smell of old socks. But I think we all agree about the drawbacks of the temptation corridor while queuing up to pay, with its sweets and chocolates.
I hope Old Mutual, which has always been a large shareholder in the worst culprit, Woolworths, will send in a corporate governance crack squad to sort out this issue.
Customers will get the last say. In the sample, 74% said they cut back on spending on shoes and clothing, 59% on food and groceries and (though I am not sure I believe it) 79% are cutting back on booze. In the top income market, more were prepared to cut back on child support than on DStv.
One way to cope with financial stress has been to take a second job. Nicholson calls this group “slashers” as they are, for example, a communications manager/yoga instructor.
Nearly two-thirds of slashers say they enjoy having two jobs, though 42% said they did not really have the time but persevere as they need the money.
STORE LAYOUTS DELIBERATELY DISORIENT YOU, SO YOU WANDER AROUND SPENDING MORE