Is it possible for South Africans to save?
FARHAN Syed is a 25-year-old part-time law student. He works as a sales consultant and in customer relations for a leading cellphone company.
Syed lives in the Durban CBD with his parents and three siblings. Each one of them does their bit contributing towards the household expenses.
“My basic monthly salary is R9 000. From that, R4 000 is used for the rent and R3 000 goes towards the groceries. Depending on the circumstances, my entire basic wage could be spent on the home,” Syed said.
“On an average month, I am left with R2 000 to pay my accounts and for public transport to work and varsity.”
He does not believe there is room for saving in the current economy.
“You cannot save unless you were born with a silver spoon in your mouth. These days, it’s about how you can spread what you have on what you need now.”
● What the statistics say about South African youth
The SA Savings Institute said its focus during Savings Month was the youth.
Sasi chief executive Gerald Mwandiambira said there were 20 million young South Africans aged between 15 and 34 and an unemployment rate of 52.4%, the highest in the world for this population group.
“The time has never been more critical to urge our youth to save and focus on entrepreneurship,” Mwandiambira said.
“South Africa’s household saving rate, which, according to Trade Economics, slumped from 0.40% to 0.20% in the third quarter of 2018, is a stark indication that parents are ill-equipped to teach their children how to save and create wealth, given their own struggles.”
The institute has held various road shows and awareness drives since June, to highlight the importance of saving.
It strived to equip the youth with basic savings and wealth creation knowledge, with the objective to “turn the situation around”.
● Age is nothing but a number:
Financial adviser Sanjith Hanuman, who is also the managing director at Avinash Consultant and Actuaries, said there should not be an age limit when it comes to saving.
“The sooner one learns to save, the faster one’s life changes for the positive. It is no hidden truth, the longer the period one saves, the more one’s savings add up to.
“The daily, weekly or monthly amount you wish to save is not important at this stage. Making saving a habit is the most important. You hear people speaking about compound interest, simply put, this is interest on interest.
“And if at this early age, the youth understands the effect of compound interest, they will become financially savvy.
“Millennials live for the day and worry about their future when it has arrived.”
But with youth unemployment being what it is, Hanuman said this should not be an excuse to save.
“Most unemployed youths are given allowances by their parents. This can be used sparingly.
“Alternatively, they can buy items on sale for limited times and sell them online. The profit can be used to make further purchases and sales, thus creating profits. Some of the money can be saved.”
He said young South Africans spent a lot of money on social media.
“Skipping a week of data purchase and saving this money can go a long way in terms of saving. It can also kick-start a process of saving at an early age.”
● Millennials in the doldrums?
Hanuman recently attended a seminar where millennials were referred to as “Generation Me”.
“They are misrepresented, stereotyped, and unappreciated, and they are often referred to as irresponsible and lazy young people.
“Most of their monthly income continues to be spent on essentials – education and utilities – and an increasing proportion is dedicated toward leisure activities like entertainment and eating out, apparel, accessories, and electronics.
“In the past few years, the number of millennials driving cars has grown considerably, making up almost one-third of all new vehicle sales.”
● Effect on savings, credit usage:
So where does this leave us with savings?
“Actually, credit card usage is at an all-time high thanks to the youth and millennials,” said Hanuman.
“The banks are happy; government, especially the Reserve Bank, is happy because money is changing hands and keeping the economy going despite uncertain times.
“So who then is complaining? The insurers, since millennials are not investing in policies, savings, and retirement annuities, etc. And how does this impact the government negatively?
From a social perspective, it puts the government into a worse situation as it needs to cater to these people when they age and cannot take care of themselves.
“South Africa is known to be one of the worst saving nations in the world. A very small percentage of people are able to retire comfortably without having to depend on the government.
“The youth and millennials are not helping the situation with their erratic savings behaviour.”
Hanuman explained that the government introduced a tax-free savings plan in an attempt to assist and drive a savings environment with the help and guidance of the respective regulatory authorities and financial services industry.
“This is another reason to start early, to take advantage of the government’s tax-free allowance and use a taxfree savings account, which has no age restrictions.
“This will enable you to save for the short to medium-term with a tax-free cash deposit monthly or annually (with certain limits) and invest long-term with a tax-free account.
“You are only allowed one such account and may cash this account at any given time tax-free. This is just one means of savings that the government offers.”
● Reality cheque:
“The sad reality today is that we live in an environment where there is little caring for others. This does not make us bad people. Life has become such, that there is no time to worry about anyone else. You are fighting your own struggles to survive.”
He raised the following points which contribute to us living in tough times:
● The political state of affairs in the country. You may not have control of this, yet this determines our lives.
● The inflation rate of 4% to 5%, which dictates our salary increases.
● Increase in the repo rate (the benchmark interest rate at which the Reserve Bank lends money to other banks). This increases home bonds and vehicle repayments.
● The increase in utility bills and rates.
● Monthly increases in the petrol price, which has a ripple effect on the price of food and transport.
● The state of lawlessness and increase in crime, which forces us to pay for increased security.
● The instability of Eskom and the blackouts we have experienced. Many companies have had to close shop, resulting in a loss of jobs.
“These are some of the factors where individuals have had to increase their bonds or borrow money from their credit cards to settle the debt.
“In some instances, people have had to let go of their properties because they cannot meet their repayment obligations.
Then how then does one find the money to save?
“Policyholders are allowing their policies to lapse because they cannot afford the premiums … Some are cancelling their medical aids because of unaffordability. With the poor state of affairs in the public health sector, one wonders what kind of health service will be provided to those in need.”
● All things considered: to save or not to save, that is the question?
“Saving must become a habit even if you start out with a piggy bank. Once saving becomes a habit, you can open a bank account. Certain banks allow you to open accounts with low amounts, provided you deposit monthly. Students should take advantage of student bank accounts. Some banks offer this with no monthly charges.”