Sav­ings cul­ture slowly dy­ing

South Africans are now sav­ing less due to the eco­nomic crunch and life­style de­mands that pro­mote debt

Financial Mail - - NATIONAL SAVINGS MONTH -

The cur­rent tough eco­nomic con­di­tions and the pres­sure this is putting on SA house­holds doesn’t make it an ideal time to save.

How­ever, many ex­perts say that there is never an ideal time to start sav­ing, rather the more ar­du­ous chal­lenge is get­ting the right in­for­ma­tion on how to save and what prod­uct to use. Stan­lib re­tail chief op­er­at­ing of­fi­cer An­thony Katakuzi­nos says in gen­eral South Africans don’t save enough. He says there is a poor cul­ture of sav­ing in SA across the board.

The 2017 Old Mu­tual Sav­ings & In­vest­ment Mon­i­tor, re­leased early this month, showed that over­all sav­ings re­mained at 15% of in­come spend — the same spot it had been since 2015. The re­port also showed that ed­u­ca­tion poli­cies, banked cash sav­ings and in­for­mal sav­ings had all fallen, par­tic­u­larly for low to mi­dlevel-in­come house­holds. It also showed that pen­sion or prov­i­dent fund and re­tire­ment an­nu­ities had in­creased slightly in us­age.

Katakuzi­nos isn’t op­ti­mistic about the prospect of SA’S sav­ings land­scape chang­ing any­time soon, as he says there aren’t any ma­jor drivers to push for a change in be­hav­iour. The econ­omy is go­ing to re­main in a tough con­di­tion for a few more years, which isn’t likely to help the sit­u­a­tion, he says.

The Economist In­tel­li­gence Unit fore­casts that real GDP growth is ex­pected to climb mod­er­ately to 1.3% in 2017, be­low the global rate.

Katakuzi­nos says it does not take much to start sav­ing, and some­one who wants to start can­not wait for a lump sum of R50,000 or R100,000 to be the start­ing point for them to save. He says it is es­sen­tial that even when times are tough peo­ple should put even small amounts of money away.

“Even though we have these tough con­di­tions, any­one who has a job needs to try to find a way of ac­tu­ally putting some of that money away,” says Katakuzi­nos.

He says that all South Africans, re­gard­less of their in­come bracket, will al­ways ex­pe­ri­ence pres­sure to spend rather than save, even in good times. The more dif­fi­cult ques­tion is where to start sav­ing and what prod­uct to use.

Peo­ple who are able should max­imise the amount they are putting away by pump­ing cash into pen­sion funds and re­tire­ment an­nu­ities, which are tax-free up to 27% of your in­come, Katakuzi­nos says.

“Ideally a pen­sion fund should pro­vide be­tween 65% and 70% of your salary as an in­come af­ter re­tire­ment. Most South Africans don’t achieve this goal, how­ever, be­cause at some point in their lives they cash in a por­tion of their pen­sion fund,” Katakuzi­nos says.

“They think they prob­a­bly will make it up but they never make it up and that’s the chal­lenge for SA.”

Peo­ple should also take ad­van­tage of the full amount they can put into a tax-free sav­ings ac­count each year. Ac­cord­ing to Katakuzi­nos, peo­ple some­times brush taxfree sav­ings off be­cause of the small amount that can be de­posited tax-free each year is cur­rently at R33,000. But over time, if the right tax-free ac­count is cho­sen, such as a unit trust tax-free ac­count, it can give flex­i­bil­ity and peo­ple can ac­cu­mu­late a good sum of money.

“If you have money to save I would def­i­nitely say max­imise the amount you can put in the [tax-free ac­count],” says Katakuzi­nos.

In­de­pen­dent ex­change traded funds strate­gist and ad­viser Ne­rina Visser says the way peo­ple are us­ing tax-free ac­counts is also an is­sue. Part of the rea­son for this is poor com­mu­ni­ca­tion of in­for­ma­tion re­lat­ing to use of the tax-free ac­counts and the ben­e­fits they of­fer.

Visser says in her work she has come across nu­mer­ous cases of peo­ple putting funds into a tax-free ac­count for six months and then with­draw­ing it.

Those peo­ple do not reap the tax-free ben­e­fit of the money, or the in­ter­est ben­e­fit the ac­count might have ac­cu­mu­lated if the money had re­mained there for years or decades.

Such peo­ple would have been bet­ter off putting the money into a reg­u­lar sav­ings ac­count. Visser

What it means: Ed­u­ca­tion cam­paigns aimed more at pro­mot­ing a sav­ings cul­ture than sell­ing prod­ucts

An­thony Katakuzi­nos: Cli­mate not too good for sav­ing

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