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