Managing your money responsibly ‘should have its own bragging rights’
Let’s face it: it’s easier to spend than it is to save, which is why everyone and their cousin is spending – and crafting an image of themselves and their aspirational lifestyles on social media. There’s nothing like the gratification that comes with getting what you’ve been coveting, and making sure that all of your friends and followers know it. You don’t even need to have the money. You just need credit.
The only thing worse than conspicuous spending is when it’s done on tick.
There’s a direct correlation between access to credit and a decline in savings. Annamaria Lusardi, the founder and academic director of the Global Financial Literacy Excellence Centre and an adviser to the US Treasury, says there has been a decline in the rate of saving in Japan and Italy, the countries that historically have had the highest rate of saving. In fact, the world over, savings rates are down. Lusardi says that while this is hard to explain, access to credit has increased as savings rates have come down.
Greater access to credit, especially among young people, and a payment system that allows for ease of payment – whether it’s at the swipe of a card or an easy online purchase – are factors affecting our propensity to save.
“Compounding this, the savings market is complex and confusing to most people who want to save,” Cora Fernandez, the chief executive of Sanlam Investments: Institutional Business, says.
Access to good quality, cost-effective financial advice can be a barrier to saving and investing, although choosing an appropriate product in which to save or invest is not rocket science, Fernandez says.
Your most important considerations are: your intentions to save, or your goal; the time you have to save (your “time horizon”); and the level of risk that you can afford to take. Finally, understand the product that you decide on and what you’re being charged. It doesn’t need to be more complicated than that, she says.
Failing to save is a bigger risk than using the wrong savings vehicle, she says. This is because of the cost of the lost opportunity.
Consumers also don’t appreciate the pivotal role that savings play in promoting economic growth and development.
Getting into a habit of saving is what it’s all about, Fernandez says.
“People become wealthy because when they come into money, they are thrifty and invest their money wisely, not in some ‘getrich-quick’ opportunity,” she says. “For most people their relationship with money, and in turn their behaviour when it comes to money, is set at a very early age. It’s very hard to unlearn these behaviours.
“My relationship with money and saving was imprinted by my grandmother. She always advocated for living below your means. In primary school, I had a Post Office bank book and every week she gave me some change to save, and I would eagerly anticipate the increase in my bank balance after every contribution. Consequently, making withdrawals was not an option. I didn’t even know what I was saving for, but I liked the idea of the money growing. The thought of someone paying me to keep my money, in the form of interest, was a fascinating concept at a young age.”
Fernandez says Sanlam understands that consumers are inundated daily with messages encouraging them to spend. “Of course, we all have to pay bills, but we need to get our spending priorities right, so that we don’t get tempted to waste money on stuff that we don’t really need.” Investing should be our top spending priority – no matter how small the amount. What’s important is that we do it. The earlier we start investing, the longer we benefit from the power of compound interest. The other big benefit of investing over the long term is that time smooths out volatility.
Lusardi says consumers can be convinced to save in the same way that they can be convinced to spend.
Retailers have successfully used celebrities to get consumers to buy their products; Sanlam’s use of celebrities to foster the value of thriftiness is commendable, Lusardi says. “It’s really important to present this type of role model, to counter the attitude that to live a satisfying life, you have to spend more, fly business class, have the latest fashions, tools or gadgets. We learn from others around us,” she says.
She says there is also value in providing statistics that highlight good behaviour. “When we read the statistics, for example, that a country doesn’t save, unfortunately this provides a message: nobody is saving, so why should I? Any statistic you can provide showing that the youth are saving more or that parents are adopting different behaviours gives the idea that the people around us are also not spending a lot, that they’re using low-cost airlines, not going to Starbucks every day, but rather doing the opposite. This is very important, because we are affected by others.
“Saving is hard. It doesn’t come naturally, and so if we see other people saving, that can be a big incentive. Also, images of people being rich is very appealing. But you become rich by saving and consuming less.”
The idea of consuming less today isn’t appealing because it conjures up images of self-denial. But if we were to associate it with positive images, it could be appealing, Lusardi suggests. For example, imagining yourself in the future as wealthy, financially secure or financially astute as a result of your choice to consume less today can be a powerful motivation.
“We all have dreams and ambitions, and we need to think about how lower consumption today will allow you to reach your dreams,” she says.
Fernandez says that rather than having a wishy-washy goal to save, focus your attention on what you want to achieve or acquire – in other words, your reason for saving. Most people have aspirations to buy a home, or a car, or to take a holiday, but they don’t have a “roadmap” to get there. “It’s about planning, which goes against instant gratification.”
Consumers also don’t always understand that earning well does not make you wealthy. “It’s not about how much money you make; it’s about what you do with it,” she says.
Lusardi says financial literacy and financial education are essential if we are to create a culture of non-conspicuous consumption. “People need to be taught to make smart money decisions. We need to empower individuals to live a truly fulfilling life: one that is fulfilling over a lifetime and not just today.”
Fernandez says Sanlam’s conspicuous savings initiative is about putting the spotlight on people who are committed to working hard and practising conspicuous saving, which should come with its own set of bragging rights.