Employers can help to foster a culture of saving
SOUTH Africans often take more interest in how to reduce debt and save during National Savings Month in July. The reality is that South Africans do not save enough, and this is particularly the case among those who cannot afford to put away some money every month, because they spend a disproportionate amount of their income on food, travel, rent and on paying off overwhelming amounts of debt.
Saving should not be a onemonth focus campaign. In light of the country’s high level of indebtedness and low economic growth, saving should receive our full attention throughout the year.
South African households have been saving less and less each year, tending to borrow rather than save. This trend means that the country’s national savings stock, which is accumulated from household savings, has been decreasing for the past 35 years, according to the Association for Savings & Investment South Africa.
Statistics from the World Bank and the South African Reserve Bank show that residential housing as a savings asset accounts for only 24 percent of the household balance sheet, which is considered low for a developing nation.
Saving is not something any of us can tackle alone; it takes concerted, all-encompassing partnerships. This is why we at Absa went into partnership with the South African Savings Institute.
Some may conclude that the low level of saving is caused by an underdeveloped culture of saving. In reality, the reasons are far more complex. In many cases, people cannot save because their circumstances do not permit it, and stubborn unemployment and the rising cost of living – made worse by historical spatial development patterns – mean that the average lower-income household faces far greater pressures than many of us imagine.
In addition, too little debt goes into buying assets that appreciate over the long term, such as property.
People often turn to debt because it allows them to acquire the things to which they aspire.
Debt is a useful tool that can be used to shape the prosperity, but only if it is used correctly. When it is used incorrectly, debt can hinder progress, because people spend too much paying back the money.
As the country grapples with ways to create inclusive economic growth, the financial pressure on households is set to rise. South Africans are having to learn quickly how to do more with less. That means that financial discipline will become crucial as families deal with the rising cost of living.
Over-indebtedness has worsened with the slowdown in economic growth and increasing unemployment levels.
Records held by the National Credit Regulator show that at the end of June last year 9.67 million people, or about 40 percent of the 24.08m credit-active consumers in South Africa, had impaired credit records and were literally drowning in debt.
Some of this debt is being incurred with the noblest of intentions. Parents are increasingly spending beyond their means to secure the very best
The biggest predictor of financial well-being is how long a savings buffer will last.
for their children, but children often become the victims of the toxic cycle of debt and low savings levels.
Absa is committed to achieving balanced and inclusive growth through unlocking solutions to some of the challenges facing our country. We have what some may consider a conservative lending policy. We have this policy because we do not want to see South Africans drowning in debt. Our Shared Growth strategy is an embodiment of this commitment; we work hard to improve access to financial services, and we provide education to our staff on how to handle debt effectively so that saving can become a reality.
There is a way out of the debt spiral. Paying off debt once and for all and converting the money that was spent on servicing debt into savings is not nearly as overwhelming as people may believe. All it often requires are small behavioural changes. But the responsibility for this, and for creating financial well-being, is a shared one.
We see a role not just for individuals and financial services providers but also for employers and human resources professionals in making sure that employees have enough savings to withstand unexpected events and provide adequately for their future.
Employers have a significant role to play in guiding employees to make the right choices to secure their financial well-being. Human resources professionals should be recommending small but significant tweaks to employees, such as regularly reviewing and adjusting their retirement fund contributions. They should also educate employees on how to start building a savings buffer in case things go wrong. Research has shown that the biggest predictor of financial well-being is how long a savings buffer will last.
This is why we have partnered with Genesis Analytics to consider financial well-being as a driver of happiness. This partnership will result in “happiness insights” to show how consumers’ happiness and productivity levels are tied to saving, and how few consumers have a savings buffer to meet sudden, urgent expenses.
Drawing on findings from the field of behavioural economics, our research highlights how small changes in behaviour can promote resilience and build financial well-being and happiness.
By helping people to face their financial fears and investigate alternative savings solutions, we can assist them to pave the way to happiness, whatever their bank balance says.