Nest eggs crack un­der eco­nomic strain

Sunday Times - - Business Money - By CHAR­LENE STEENKAMP

● As liv­ing ex­penses such as food and fuel rise, so has the pro­por­tion of in­come we spend on these con­sum­ables, putting the squeeze on our abil­ity to save and ser­vice debt, a sur­vey re­veals.

Sav­ings as a per­cent­age of house­hold spend­ing have been de­clin­ing since 2013, when they rep­re­sented on av­er­age 20% of house­hold spend com­pared with 14% this past year.

The lat­est Old Mu­tual Sav­ings and In­vest­ment Mon­i­tor re­sults, re­leased this week, re­veal that house­holds are spend­ing 67% of their house­hold in­come on liv­ing ex­penses com­pared with 62% the pre­vi­ous year.

Four­teen per­cent is be­ing saved, 13% is spent on ser­vic­ing debt and 6% goes to­wards in­sur­ance and med­i­cal schemes.

Sav­ings (pen­sion funds, ed­u­ca­tion poli­cies, and so on), as well as in­sur­ance and med­i­cal scheme costs, have been cut back by a per­cent­age point each, while debt ser­vic­ing has to 13% of in­come from 16% last year.

Fur­ther­more, the out­look for the econ­omy, and there­fore the prospect for sav­ing, is gloomy, ac­cord­ing to Rian le Roux, Old Mu­tual In­vest­ment Group’s eco­nomic strate­gist.

The eco­nomic con­trac­tion in the first quar­ter of this year was a huge shock, and there is no ev­i­dence of a ma­te­rial im­prove­ment in the sec­ond quar­ter, he says.

“Sav­ing de­pends on the abil­ity to save, which, in turn, cru­cially de­pends on more jobs be­ing cre­ated,” he says.

The an­nual sur­vey of em­ployed peo­ple in metropoli­tan ar­eas iden­ti­fies some bad habits South Africans could fix to im­prove their fi­nan­cial lot:

● High debt-ser­vic­ing costs stemming from high debt lev­els. Even high earn­ers (those earn­ing R80 000 a month or more), who spend a smaller pro­por­tion of their in­come (42%) on liv­ing ex­penses rel­a­tive to other in­come groups, spend 17% of their in­come ser­vic­ing their debts, sub­stan­tially more than the 13% spent by lower-in­come house­holds. The Mon­i­tor shows that 27% of high-in­come house­holds have per­sonal loans from a fi­nan­cial in­sti­tu­tion, com­pared with only 14% of South Africans with lower in­comes;

● There has been a sig­nif­i­cant in­crease in South Africans pay­ing only the min­i­mum in­stal­ment on their credit card debt, one of the most ex­pen­sive forms of debt you can have. The Mon­i­tor found that 38% of those earn­ing R40 000-plus, for ex­am­ple, paid only the min­i­mum each month;

● Some 57% of South African par­ents are not sav­ing for their chil­dren’s ed­u­ca­tion. In 2010, more par­ents were sav­ing for ed­u­ca­tion — only 37% of par­ents were not sav­ing for ed­u­ca­tion then;

● South Africans have higher ex­pec­ta­tions than be­fore that they will have to sup­port their fam­ily or par­ents in the fu­ture (57% ex­pected to do so last year ver­sus 50% in 2012);

● The Old Mu­tual Sand­wich Gen­er­a­tion In­di­ca­tor shows that 27% of South Africans sup­port their chil­dren as well as par­ents or other older de­pen­dants;

● One out of ev­ery two adult chil­dren be­tween 18 and 30 opt to live at home with their par­ents;

● There has been a sig­nif­i­cant im­prove­ment in the per­cent­age of house­holds who make it through to month-end with­out hav­ing to bor­row from friends or dip into sav­ings, but 41% of house­holds (and 73% of house­holds earn­ing less than R6 000 a month) still run out of funds to cover their ex­penses at least once a year;

● Over the past two years, fewer South Africans made late pay­ments on their bills or missed pay­ments when their in­come and ex­penses were out of sync, but one in four South Africans earn­ing R20 000-plus re­sorted to tak­ing out per­sonal loans to make ends meet this past year and fewer peo­ple are bor­row­ing from cash-strapped fam­ily and friends; and

● To cut back on ex­penses, South Africans are de­lay­ing plans such as home ren­o­va­tions, cut­ting back on the pur­chase of air­time, elec­tric­ity, gro­ceries, DStv sub­scrip­tions, do­mes­tic work­ers, armed re­sponse ser­vices and hol­i­days, and are shop­ping at cheaper supermarkets and buy­ing cheaper brands of goods, Old Mu­tual’s re­search man­ager Lynette Ni­chol­son says.

South Africans’ sen­ti­ment about their fi­nances has re­mained fairly sta­ble. Over­all, they rate their con­fi­dence in mak­ing fi­nan­cial de­ci­sions at 6.4 out of 10 and their sat­is­fac­tion with their cur­rent fi­nan­cial sit­u­a­tion at 5.9 out of 10, ac­cord­ing to the Sav­ings and In­vest­ment Mon­i­tor.

Ni­chol­son says she hopes that some of the sober­ing re­sults from the 2018 sur­vey will en­cour­age South Africans to com­mit to re­spon­si­ble fi­nan­cial habits.

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