Saving some money and ourselves in the process
It is disappointing that generally, indebted South Africans learn about financial literacy only upon experiencing financial troubles. Financial literacy as a concept is the possession of knowledge that allows an individual to make informed and effective decisions with their financial resources. July is National Savings Month. It is an opportunity for the country’s banks and financial institutions to raise awareness of the importance of savings, and for each and every South African to revisit their financial plan.
David Mc Call; Executive Investments Retail and Business Banking at Nedbank, refers to this education as “the maths of money”. He says: “This is primarily about understanding the law of compound interest and its implications on savings and investments, but also the negative impact it has on the indebted.”
National Savings Month comes amid the increasing cost of utilities, with projected increases in the energy sector likely to cause increases across the entire value chain. This will hurt the poorest the most, and there will be complaints, but it is important to remember that July Savings Month is not limited only to the saving of income, but encompasses resources and utilities as well. The effective use of electricity, water and data to avoid wastage and large monthly bills is in itself a form of saving. Maintaining consciousness of one’s actions and choices affects the environment.
These and other forms of saving should be encouraged, even in the workplace. The theme for National Savings Month 2018 is “employer assisted saving”.
Nedbank has developed a 10-point plan with regards to how we may start to save. The operative word is “start”. One of the most effective methods to instil disciplined behaviour and avoid unnecessary expenditure is budgeting. Why are we as South Africans so bad at savings, and why are we so over-indebted?
McCall says: “Intuitively, everyone knows they should be saving, but everyone needs to question their unique individual circumstances that preclude them from saving.”
Developed countries in Europe have a huge culture of saving, although they usually have low interest rates, yielding less benefit as compared to South Africans, where there are relatively good interest rates for those who invest. But the law of compound interest also affects the indebted; interest builds on defaulted payments, essentially trapping the individual in debt.
Are you able to sacrifice certain behaviours and habits that could contribute to a saving of some sort? This is the question to be answered this Savings Month.
Inflation is defined as the rate at which prices increase, and considering the volatility of money, it is evident that phenomena such as these are cyclical. “Things change from a market point of view, and as a result personal circumstances change as well; savings can act as a buffer when circumstances in the economy affect personal circumstances,” says McCall.
Education and financial literacy
With awareness comes choice. The financial service providers and media institutions have a responsibility to educate the public about the basics of two concepts: the source of money, and the use of money. Simplifying things to this level allows a culture of saving to be easily explained and encouraged from an early age.
Millennials are often criticised for their addiction to instant gratification while savings and investments, often requiring time, are of little interest to them. But as the “do what you love” philosophy grows, more people are finding ways to turn their passions into profits. It is therefore most important that the most salient entrepreneurship education is made available to the youth, both in the private and public sectors.
Financial and insurance service providers have tried in recent years to appeal to the South African working class with various forms of savings, from unit trusts to retail savings bonds, but mostly life cover and funeral policies. Stokvels remain valid and because communities prefer being unbanked to avoid “unreasonable” charges. Some communities have logistics challenges such as difficulties in getting to bank branches, and the costs of formal banking structures remain prohibitive for many individuals. In townships, young entrepreneurs are exploring alternative models of savings through co-operative financial services. The model is based on citizens buying equity in local small businesses with a vision to grow.
Nedbank, aligned to its brand promise of sustainability and social responsibility, understands the social and economic landscape of South Africa. The bank encourages maintaining a varied portfolio across different products and financial service providers. It is important in the decision-making process to consider one’s life cycle, and consider short, medium and longterm goals and plan accordingly. To remain un-banked is not good for the growth and economy of our country, experts say.
“Nedbank is a money expert with the experience to keep money, lend money and facilitate the flow of money in the economy. We are money experts who do good,” McCall says proudly.
More money, less money problems
With a high unemployment rate among the youth, and much of the population being working class, South Africans do not generally have savings pools to tap into in times of emergency. This inflicts an excessive strain on social services.
The middle class, research has shown, tend to cash in their retirement savings during their careers, much to their detriment of their retirement fund. The earlier one begins saving for retirement, the longer one has to take advantage of the full benefit of compound interest over the years. For this reason the national treasury introduced Tax Free Savings Accounts as from March 1 2015 to build household savings and encourage investment.
July savings month will end, the campaigns and their energy will pass. Utilities and essentials will increase. Will we be prepared with the skills and knowledge to effective deal with the reality we will find ourselves in? It will require integrity and discipline to learn from our own mistakes and the mistakes of others. Being conscious and aware of our surroundings should teach us about frugality and austerity, saving resources, saving money and ourselves in the process.