Savings on back foot as costs rise

SOUTH African consumers are not prioritising saving for large purchase items or retirement due to the rising costs of living and borrowing, but are instead saving for food and funeral costs.

The findings are from a nationally representative survey of 20 000-plus South Africans, conducted by Eighty20, a consumer strategy, research and analytics business specialising in helping brands better understand customers.

July is National Savings Month with a philosophy to encourage and cultivate a savings culture among South Africans.

Data available on Eighty20’s data portal reveals that there just is not enough to go around – not enough to sustain oneself and family members, and certainly not enough to put away after paying for essentials and necessary expenses.

The FinScope Consumer Survey is aimed at increasing the understanding of the informal financial product/ service market, and the two research sets give insight into South Africans’ saving behaviour.

The annual FinScope Consumer (2022) survey showed 52% of adults were putting away for rainy days in formal and informal mechanisms, with 26% using informal mechanisms, and 11% keeping money at home.

However, what was more concerning was that most of these savings were for food consumption and funeral costs, rather than for capital investments or large item purchases.

Eighty20 said that showed the limited capacity of adults to adequately cover their consumption expenses, let alone save for large items.

Eighty20 director Andrew Fulton said a closer look at the data revealed that 15% of adults had retirement products, 12% had short-term savings, 11% have medium-term savings and only 4% had long-term savings/ investments products.

Fulton said the proposed new changes to the two-pot retirement system highlighted the importance of savings, but the country’s poor savings culture showed that only the top-end of the Living Standards Measure (LSM) scale had the ability to save.

“Consumers are feeling the pinch and saving is not prioritised due to the challenges of rising costs coupled with inflation and interest hikes.

“As one of the most unequal societies in the world, we can note that savings by LSM is very telling – with only the top-end of the scale having the ability to save.”

Eighty20 said consumers who were saving for only food and consumables would not be able to sufficiently manage additional financial shocks.

As a result, adult South Africans were turning to non-cash options, with a notable increase in the use of loyalty points.

Eighty20 said that last year, there was an eight-percentage point increase, to 46% of adults who used loyalty points programmes from 2021.

Savings should not be restricted to monetary instruments to aid adults and households in making the most of their current circumstances.

Some financial experts recommend saving first before paying expenses, while others typically follow the traditional approach of paying expenses first and saving afterwards.

However, FinMark Trust said it was concerning that 83% of economically active adult South Africans (24.4 million) did not have retirement plans.

It said the statistic was alarming, considering the high dependency rate on the government’s social security welfare.

FinMark Trust senior data and analytics specialist Abel Motsomi said it was imperative for citizens to envision the future selves and take the appropriate steps today.

“Firstly, teach children to develop a savings culture from the little they have, such as lunch money. Secondly, adults can save to prepare for financial shocks beyond covering funeral expenses,” Motsomi said.

“Lastly, plan and save adequately towards a post-retirement life when income will be limited.

“The quality of savings depends on what you are saving for and how saved up you are.”