Annually, in July, the South African Savings Institute (SASI) runs an awareness campaign around saving. Awareness appears to be sorely needed, as South Africa’s national savings rate is notoriously low – gross saving as a percentage of GDP fell to 14.4% in the fourth quarter of 2021. According to World Bank data, this puts SA behind the likes of Mali, Haiti and Benin. Countries such as Singapore and China are on 40% and above.
When it comes to households’ savings, one part of the bucket that makes up the national savings rate, the South African Reserve Bank’s latest Quarterly Bulletin shows a slight uptick in 2020, but to the very conservative level of only 2%.
Does this mean that South Africans simply cannot save – whether it is because they don’t see the need, don’t have the means or lack information about their options?
Thami Cele, head of Everyday Banking, Savings and Investments at Absa, believes that South Africans who have the means to, do make an effort to save and to plan for their future.
“Of course, the country also has many citizens who simply don’t have the ability to save due to the shape of the economy and their income levels,” he says. “However, the savings rate has been on the uptick over the past couple of years, which is encouraging.”
Even for those who have the financial means to build a savings buffer, it does not come easy.
“Saving is not easy. Saving is hard,” says Cele. He argues that in today’s world, people want to show off their assets and financial means a lot more and an instant gratification culture often interferes with the discipline required to build a habit of saving.
“Saving is about self-control and sacrificing immediate joy for future gratification,” he says.
Those who do knuckle down and put away money as part of a ritual of saving will, however, find that it is a very gratifying experience, says Cele.
“Someone might be saving to buy a house. If you have that deposit handy because you have saved over time, you can reach this milestone and others,” he says. “The rewards are worth the effort.”
Don’t wait until later, make it a priority and automate
It’s easier to become a persistent saver if you start when you are young – before lifestyle inflation kicks in.
“It becomes a lot more difficult as you get older, and your expenses become established and are structurally part of your life. It’s difficult to let go of anything to free up income for savings if you have become used to a certain standard of living,” says Cele.
Absa encourages its clients to save from the very first day that they earn any sort of income, before they become used to the money as part of their disposable income.
“Also don’t do it as the last balancing act, seeing what is left. Make it intentional, for example, deciding that you will always save 5% of what you receive,” he says. “You allocate that as soon as you get paid and physically move the money into a savings account. You can also automate it via a stop order, which is very effective.”
Cele believes that the government’s tax-free savings initiative has had a positive impact on the savings culture of the country.
“More and more people are making use of the monthly allowance to save or putting the annual allowance in a fixed deposit account,” he says.
Another way to create a savings culture is for parents to model good financial behaviour and make their children part of financial conversations, in order for them to learn from an early age.
“If you can start to include them in small decisions that are financial in nature, it gets them curious and helps later on in life,” he says.
Absa has a MegaU Account specifically for children under the age of 18. It comes with free swipes and data and helps to integrate children into the world of banking and financial inclusion.
Where’s your buffer?
Covid-19 has definitely illuminated the consequences of not having a proper savings buffer.
For many South Africans, not being able to work or seeing a decline or loss of income due to restrictions or the economic slowdown has exposed the precarious financial positions that they find themselves in.
“You have to ask yourself the question: what if I lose my income today? Will I be able to cover my essential expenses?” says Cele. With unemployment on the rise, the period to find a new job can stretch over months.
“You might be looking at three to six months where you need to build a buffer to at least cover the most essential expenses. If you have this, it amplifies your financial resilience.”
Cele advises that South Africans first build as much of a short-term savings buffer as possible, before looking at growing their wealth through investments.
This will ensure that if there is an external shock, such as Covid-19, you don’t have to dip into your investment capital, which would erode the long-term cumulative gains that could be earned.
Saving means different things to different people
During Savings Month, Absa wants to focus on the different iterations of saving for the country’s diverse population. In partnership with SASI, it will be hosting different webinars that look at a variety of topics, including:
- How entrepreneurs navigate savings
- Making saving accessible and acceptable to the youth
- The importance of women in a savings culture
- Stokvels and group savings mechanisms are becoming more and more popular.
“We want to focus on what saving essentially is, for all South Africans, in their own language. In the end, saving is not just about withstanding unforeseen shocks, but also about building wealth,” says Cele. “We want to be part of that conversation.”
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