Time to get into the habit of saving

TODAY marks the start of the annual National Savings Month awareness campaign, and the focus this year is on alternative savings solutions.

Saving is a habit you should acquire early in life. You should find a savings vehicle that will enable you to achieve your goals.

Lack of awareness, or knowledge, about savings and investment vehicles often prevents people from saving. The Financial Services Board Financial Literacy Report 2011 found that most South Africans use basic products, such as bank accounts, to save, while only 39% are aware of more sophisticated alternatives, such as unit trust funds. The Old Mutual Savings and Investment Monitor found that 80% of respondents wanted to learn more about how to save.

National Savings Month is promoted by the South African Savings Institute (Sasi). Sasi chairperson Prem Govender says the consequences for the economy of the recent credit ratings downgrades will place more pressure on consumers, and they will have to improve their attitude towards saving and their knowledge of how to save.

“Many South Africans are struggling to save, not only due to income challenges, but also because they lack the willpower and commitment. In terms of alternative savings solutions, we are involving employers this year and suggesting ways to facilitate or automate the savings process for those with an income, such as garnishee savings options into a tax-free saving account and 13th cheques structured as a savings tool,” Govender says.

She says that young South Africans are increasingly relying on credit to pay for necessities, and there is a growing culture of people living way beyond their means and becoming trapped in a cycle of short-term debt.

So what alternative savings solutions are there?

One of the most popular is the stokvel, a relatively informal savings scheme run by a group of people who save a set amount, say R1 000 each month. Each member of the stokvel has a turn to receive all the money collected in a particular month.

According to research firm African Response, there are 421 000 stokvels in South Africa, to which 8.6 million people belong, and the stokvels have a combined value of R25 billion.

A for mal option for longterm saving is a tax-free savings account. It can take the form of a money-market or fixed-term bank account, a unit trust fund or a JSElisted exchange traded fund.

You are limited to contributing a maximum of R33 000 a year, or R500 000 over your lifetime. You do not pay any tax on the interest or dividends earned by your investment, and you do not pay capital gains tax on any capital gains.

kabelo.khumalo@inl.co.za