How you can save South Africa

FIGURES signalling betterthan-hoped-for economic growth in 2017 brought sighs of relief all round after South Africans experienced a tough year financially. But this growth is not nearly enough, and the time has come for all of us to play our part in breathing life back into the economy through a simple yet powerful tool: saving.

According to World Bank statistics, South Africa’s population grew 1.6% in 2016, far outstripping gross domestic product (GDP) growth of 0.3% and abysmally short of the

5.4% targeted by the National Development Plan for driving back poverty and inequality.

And although the 2017 figures were slightly more positive, it is expected that South Africa’s economy grew only about 1% last year.

An economy that grows slower than the population it supports is unsustainable. Quite simply, it is a recipe for disaster.

A culture of saving has been a significant contributor to the economic success of countries such as China, whose gross savings rate is nearly 50% of

GDP, facilitating investment in businesses and infrastructure.

India is another country whose culture of saving has been the bedrock of its economic growth. A recent Goldman

Sachs report predicted that, in a few years from now, India will not need a single dollar in foreign investment to fund its infrastructural improvements, thanks to a household savings rate that was as high as 39% of GDP at the end of 2016.

By contrast, South Africa’s household savings rate, as measured at the end of September 2017, was a pitiful 1.6% of GDP. This is despite the fact that the average South African’s income, or GDP per capita, is three times higher than that of the average Indian’s.

In addition, South Africa’s household debt as a percentage of disposable income is a shocking 72.5%, which means that, for every rand earned, nearly threequarters is spent on debt.

It’s an unavoidable truth that ours is a consumerist society that values a pleasure-seeking way of life funded by debt, and a growing number of people from all walks of life are living beyond their means. This is compounded by problems such as a high dependency ratio, with breadwinners supporting a large number of family members on a limited income, persistent unemployment, a rising tax burden, the high cost of living, and a lack of confidence in the future.

A key reason for South Africa’s growing credit addiction is the low level of financial literacy, particularly among the youth, which points to the need for financial education.

Economic theory teaches that the young tend to save less and spend more. Given that South Africa has a relatively young population, it is not surprising that we increasingly see people relying on credit to provide for themselves and their families.

To break the cycle of generational debt and the low rate of savings in South Africa, it is imperative that financial literacy be entrenched from as an young an age as possible, encouraging people to save more and spend less.

Mbulelo Musa is a wealth adviser at BayHill Capital.