South Africans are struggling – but they’re saving, too

If you rate your level of financial stress as “overwhelming” or “high”, you’re part of the two-thirds of the population feeling that way.You may be encouraged to know that others are also cutting their costs and their spending. Angelique Ardé reports

Only 46 percent of people who work in South Africa’s major metropolitan areas have a personal budget and even fewer say they have a household budget, according to the latest Old Mutual Savings & Investment Monitor.

Without a budget, it’s hard to know and control your financial situation, Derick Ferreira, the head of product management at Old Mutual, says. The first step towards financial security is to draw up a budget as part of a broader financial plan.

Ferreira explains that the financial planning process helps you to identify your personal financial goals and better understand how to achieve them.

KNOWLEDGE IS POWER

“The theme and objective of the Old Mutual Savings & Investment Monitor is ‘Know better, do better’ and it applies equally to us, as financial services providers, and our customers. We believe knowledge and insights are powerful guides,” he says.

Ferreira stresses the critical importance of having a handle on your finances and the need for financial literacy at individual and household level. The monitor, which was launched in 2009, is an annual survey that tracks the financial attitudes and behaviours of South Africa’s working metropolitan population. It serves as a barometer of sorts and is one of Old Mutual’s contributions to the national conversation about saving and investing. “It’s about helping you understand the value of proper financial planning,” he says.

If we know where we are going wrong, we have a better chance of correcting ourselves. But if we are in the dark about our situation or our habits, we have no hope of fixing them.

A key finding of this year’s survey is that nearly half of all South African households are saving less than they were a year ago. This is the lowest savings level reported since 2009, when households were recovering from the 2008 global financial crisis.

The collective savings of a country’s citizens play a role in bolstering the national economy through the financing of infrastructure investment, Rian le Roux, an economist at Old Mutual Investment Group, says.

“Since 2000, total gross savings in the South African economy has remained broadly unchanged, at approximately 16 percent, which is way too low to finance investment of around 20 percent of GDP, leaving the country heavily reliant on foreign capital inflows to finance the shortfall.”

In other words, if foreigners do not invest in South Africa, investment in infrastructure, such as roads, bridges, hospitals and ports, will decrease, undermining the already weak growth potential of the economy, he says.

Some of the negative knock-on effects of a weak economic growth rate include businesses and investors looking for opportunities to invest abroad; increased pressure on the country’s unemployment rate; and escalating levels of socioeconomic unrest, Le Roux says. “Low savings lead to low growth, which leads to even less saving – thereby creating an ongoing vicious cycle.”

Turning to personal savings, Le Roux says households have been “dissaving” for more than a decade. “In simple terms, this means that, on average, people spend more than they earn, and finance the shortfall by borrowing or depleting their savings. Most households are not accumulating enough of a financial nest egg to finance future liabilities, such as children’s education and retirement.”

Contributing to the low savings levels is the fact that people don’t realise how much they will need in retirement and therefore don’t plan sufficiently.

“Saving more is a conscious decision that requires spending less today,” Le Roux says.

Ferreira says if you are serious about spending less, review your budget to identify areas where you can cut back. For those who don’t have a budget, his message is harsh: take responsibility. Whatever is stopping you from budgeting – whether it’s laziness, complacency or fear of facing the truth – you need to overcome it, he says. Budgeting is essential in a “plastic” world that enables you to swipe a debit or credit card whenever you want to buy anything. You can easily lose track of your spending. Unlike in the days of cash, when money was tangible and as you spent it, you watched it disappear.

He concedes that there are those who earn so little that they can’t afford to save. But there are those who can afford to save a little and those who can afford to save more than they do. However this is not going to happen unless you make it happen, he says echoing Le Roux’s sentiments.

WEAK PLANNERS

The survey shows that lowincome earners tend to be weak planners, more focused on the now, and weak savers because of their financial reality rather than a lack of will. Wealthier respondents are better at setting goals and planning, and are better savers. More low-income earners than high earners said they would like financial advice, but consider it hard to find someone they trust. However, over 80 percent of all respondents say they would like to learn how to save.

This is where a good financial adviser can add value, Ferreira says. “The best advisers will have an advice-led, customer-centric approach, which means they offer holistic financial solutions based on their customers’ unique needs and aspirations.”

He says the perception that you need to be wealthy to be able to afford to see a financial adviser is not true and is a barrier for the people who most need advice. “Never think that you earn too little to be eligible for advice,” he says. “An adviser should help you understand your circumstances and your needs.” And if you haven’t shared your goals with your adviser, you need to, because your goals reveal and help determine your priorities.

“But most importantly, have an honest conversation with yourself,” Ferreira says. “We are quick to blame others or external factors for the situation in which we find ourselves. Ultimately it’s up to you to take responsibility for your financial situation; only you can change your behaviour.” The findings of the latest Old Mutual Savings & Investment Monitor, which was released this week, make for sober reading. As a survey of the financial attitudes and behaviour of South Africa’s working metropolitan population, it shows how low we’re all feeling about our finances and economic outlook. But it also shows that while savings levels are down, there are those who are managing to save more – and not necessarily because they are earning more.

Almost half of all households say they are saving less than they were a year ago. This is the worst measure since the inaugural survey in 2009, which was immediately after the 2008 financial crisis when 52 percent of respondents claimed to be saving less.

This year, two-thirds of respondents described their level of financial stress as “overwhelming” or “high”. Almost 60 percent of respondents found that, at least once over the past year, their income did not cover their living costs. This was the case for three-quarters of respondents in lowincome households (monthly income of R6 000 or less) and for one-third of those with a household income of more than R40 000 a month.

On a more positive note, the survey shows that those who are managing to save more say they are able to do so because of “good debt management” (and the knock-on effect of freeing up funds that can be saved) and a realisation of the importance of savings.

Among the more worrying findings of the survey is that almost half of all mothers in South Africa classify themselves as single parents, with 88 percent of them not receiving regular financial support from the fathers of their children. And the poorer the household, the more likely it is that it will include a single mother.

Adding to the burden on single mothers is that some are in the “sandwich generation”, which means they are also supporting their parents, a sibling, a relative or another adult.

Nearly 40 percent of all respondents said they had dependants in addition to children of their own.

Almost 60 percent of respondents said they expected to support parents or relatives in future. Since the inception of the survey in 2009, this is the highest percentage of respondents facing taking on this responsibility.

The survey shows that debt levels and financial stress are closely linked: 52 percent of respondents who described their stress levels as “overwhelming” said they had too much debt and were battling to manage it.

There has been an increase in the percentage of debt-stressed households that admit to “feeling in trouble”. A quarter of all respondents in this year’s survey said they had too much debt and were having trouble managing it, compared to 16 percent of respondents last year.

Respondents in all income bands are less satisfied with their personal finances than they were last year. The survey notes that, to date, the higher income bands have been fairly resilient, but now even they are showing signs of strain.

To gain an understanding of just how financially robust working metro households are, and to understand how they would behave in the face of a financial emergency, respondents were asked how they would handle an unforeseen expense of R1 000, then R5 000, rising to R100 000.

This year’s survey shows that all but two percent of working households could handle an unforeseen expense of R1 000. Fifty percent would access savings, nine percent would use a credit card and the rest would borrow from a friend (25 percent) or a stokvel (six percent). Most (84 percent) would not be able to handle an unforeseen expense of R100 000.

In response to financial hardship, households are trying to cut costs by curbing spending on luxuries such as travel (88 percent) and entertainment (86 percent). Almost 80 percent of respondents said they avoided situations where they might overspend and 71 percent took lunch to work (instead of buying it), according to Lynette Nicholson, the research manager at Old Mutual.