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South Africans are known to be poor savers

How the Asian Tigers spoke to then finance minister Trevor Manuel about personal savings – a chat with the SA Savings Institute’s Gerald Mwandiambira.

CIARAN RYAN: We are talking to Gerald Mwandiambira, acting CEO for the South African Savings Institute. Hello, Gerald. The South African Savings Institute is a non-profit organisation, set up to encourage a culture of savings in South Africa. That’s according to the website. Can you tell us about it, when it started, and how you are actually going about getting people to save?

GERALD MWANDIAMBIRA: Well, the South African Savings Institute [Sasi] was set up 2001, and it was an initiative that was led by the then minister of finance, Trevor Manuel.

The real thinking behind the savings institute was that the Asian Tigers [the economies of Hong Kong, Singapore, South Korea and Taiwan], who were doing well at the time, were countries that were built on a big domestic savings base. The minister at the time felt that it was necessary for South Africa to start building its own domestic savings base, and the institute was set up as a vehicle to encourage and to educate South Africa’s population on the merits of savings, as well as hopefully to start creating a domestic savings base that could help to grow the economy.

The institute was set up with three primary pillars. The first pillar was advocacy. Now, advocacy revolves around Sasi being an intermediary or a mediator between the public, government and the financial institutions, so that we can have robust dialogue around savings and investment. One of the dialogues we have participated in over time is that which led to the creation of the retail treasury bills that went out, which are available at the Post Office. It was really a discussion where people wanted to access government instruments, and that’s one of the discussions we facilitated.

We’ve also facilitated other advocacy initiatives, such as July being savings month, which is observed widely now as the month in which savings and investment is the topic in financial circles and in the media.

Our second pillar was around research, and research is around us setting up a library, a repository of information on savings and investment – so all theses, all academic papers on savings and investment. We run this library so that information is freely available to South Africans, and then, when accessed by international users, we obviously collect a small fee.

The third pillar is probably the most known pillar of the savings institute, which is around consumer education. Consumer education is around initiatives such as July Savings Month, our varsity education campaign, our festive season campaign and initiatives that we take on on an ad hoc basis with various partners.

So, with these three initiatives, Sasi was set up in 2001, and we’ve been going strong since then.

CIARAN RYAN: Okay. Some of the stats on your website caught my eye, but one thing in particular I found alarming. It’s that the ratio of debt to disposable income in South Africa has shot from 55% in 1991 to 78%. What is going on here, and is there any way that you can measure the impact of what you are doing?

GERALD MWANDIAMBIRA: Measuring the impact of the Savings Institute is difficult because we do not have products or solutions that quantify what people are saving. All we can do is go by the South African Reserve Bank’s statistics and, yes, although you have noted that the debt-to-savings ratio in South Africa is high, what we can say is that it’s been coming down over the last four to five years quite considerably. I think debt peaked at about 83% of household income, and now it has come down to below 74%. So this has been [the result of] a combination of both education and the reality that many people have been burnt in terms of having default judgments or having listings against them. So we think that, yes, we can claim a little bit of the credit. But yes, we also do accept that a lot of the reduction in the debt is also a result of a dwindling debt pool in that there are fewer people who qualify for debt because of the National Credit Act, which was amended to make it a little more difficult to access debt recklessly.

Another statistic you probably would have seen is the household savings-to-disposable-income statistic. For many years, South Africa was sitting on a negative percentage, and we are still below 1% of disposable household income being saved. But at least we are now back in positive territory. Again, it’s a result of a lot of people realising that either they don’t qualify for debt any more, and they are starting to save, or, we believe, through wider knowledge around the need to save and invest.

CIARAN RYAN: That of course is another stat that is put out by the National Credit Regulator on a monthly basis, and it shows that about four out of 10 South Africans have an adverse credit listing. That means they are either – I think – three or more months in arrears on a bill, or they have some judgment or some adverse listing there that puts them on that database. That has also been coming down – in other words, it has been improving. There are fewer and fewer people appearing on that database. But, even so, it’s four out of 10 – that’s a lot of people in trouble.

GERALD MWANDIAMBIRA: Well, yes. I think we extended credit to most people without education to back it up. The limited education we did have was from financial institutions which were educating with a purpose, and that’s why Sasi sometimes is useful in that we are not tied to any financial institution, nor do we have a product. So our message tends to be a lot purer in terms of just having the motive of education as opposed to having a call to action attached to it.

So yes, we believe that most people have been burnt, but we also believe that the changes to the National Credit Act were very good in terms of penalising financial institutions that lent recklessly, and allowed for individuals who borrow to be properly vetted in terms of affordability.

CIARAN RYAN: So we often hear about how people in China and India save a high percentage of their monthly earnings. There does appear to be a cultural factor at play here. Why are we in South Africa such poor savers?

GERALD MWANDIAMBIRA: I think if you look at China, India, they don’t have compulsory retirement vehicles. So your savings are always your responsibility from day one. I think that pressure alone encourages those populations to realise and value savings. The fact that we have compulsory retirement vehicles – pension funds, provident funds – deceives most people into thinking that they are actually saving, or saving enough. The problem with these vehicles is that most people don’t understand how they work. So ultimately, when they do retire, they retire with less than they should have, mainly because they never received the education they needed prior to using that instrument.

South Africa is also weak as a savings nation, even compared to our African peers. I think it’s a cultural thing. We are a consumption-led economy. Technology and social media have not helped us in terms of improving our standing as savers. That’s why we need to simply keep getting that message out there – that it’s important to save and invest, because the rainy days are becoming more frequent than they were in the past. And, as we know right now, we are in that technical recession environment.

CIARAN RYAN: Economists are always reminding us that if we had more savings as a nation, our economic growth rate could shoot up to about 5%, which is what government wants to see anyway. That seems to be so far away from where we are now, so how do we go about getting that? If we had more savings, that capital could then be employed productively within the economy, and we would start seeing the kind of growth rate and the job creation that we need. But we really are a long way away from there. How do we get there?

GERALD MWANDIAMBIRA: I think when it comes to the economic growth rate, a lot of pressure has been directed at the consumer. However, the biggest spender is actually the person who has the biggest capacity to save. So what we need, to really push our economic growth rate, is to get government to start saving, as they were doing prudently up til the millennium, in terms of getting them to start to save more, because the budget deficit is driven by government spending.

Corporate South Africa is known as a great net saver. In fact, the bulk of the country’s savings are sitting in corporates in South Africa. Yes, individuals can contribute to the savings culture, but by and large, in order to improve our domestic economic growth rate, we need to have government saving a lot more – in other words, cancel out that deficit. And also get individuals saving a little more into the compulsory vehicles available, as well as voluntary savings.

An easy way to get individuals to save more might be to make compulsory savings vehicles have to save a little more. But again, it’s around freedom of choice and people wanting also to have choices on whether to save or not.

CIARAN RYAN: Here’s a bit of a curve ball for you: what is the best financial advice you have ever received?

GERALD MWANDIAMBIRA: The best financial advice I ever received was that I should start saving at 20. I was shown the great amount I would have when I’m 55 or 65. That was the best financial advice I’ve ever had, except I got it in my mid-30s.

CIARAN RYAN: [Laughing]

GERALD MWANDIAMBIRA: That is excellent financial advice, and that’s the advice we’d like to get to young people. Hence our varsity education campaign is very, very high among our initiatives, because if you catch them before they are in their mid-20s, they can make all their savings growth happen, because time is on their side. So yes, savings need to start early. That’s the best advice I ever received. Unfortunately I jumped onto the bandwagon perhaps a little bit too late, but I’m making amends.

CIARAN RYAN: And what’s the worst financial advice you have ever received or heard?

GERALD MWANDIAMBIRA: The worst financial advice I’ve ever received is that you must look where you are going – that is, dress the part and drive the car as where you want to be in 40 years’ time. Very bad advice, forcing you to get into an expensive vehicle and into debt, which I couldn’t afford, around upkeep and clothing. That’s really the advice that’s prevalent among most young people. Social media doesn’t help, because when they see celebrities in vehicles and clothes, they don’t realise most of the time these things are loaned to them for the photo shoot, and most of us work hard and get into debt to try and emulate those examples. So the worst advice is probably to look at other people and try to be like them. It’s very bad advice in terms of not being able to set your own individual financial and saving goals.

CIARAN RYAN: When it comes to retirement, millions of people are having to rely on family and to a lesser extent the state pension, which is about R1 700 a month.

Final question – what advice would you give the people who are 15 or 20 years away from retirement, and have little or no savings? Is it too late to start.

GERALD MWANDIAMBIRA: I believe that it’s never too late to start, in the sense that you cannot survive on R1 790, which is the state grant, a month. So it’s never too late. You can start saving. The best advice for those people who are 50 to 20 years from retirement is to seek professional advice. So go and sit down with a professional financial planner and try to set some goals. Yes, you will have to sacrifice a little more, but you can still get on the right track in terms of having a decent retirement, in terms of having some dignity in your retirement.

However, the three things that will never change when you are saving and investing, which apply all through your life, are that saving and investing require sacrifice in terms of giving up what you enjoy today, commitment in terms of realising that your eyes must be set on the goal, and discipline in terms of being able to do it over and over, month in, month out – and at times you might need to get some automation to help you with that discipline. You put those three things into play, and even with 15 to 20 years to go you can make it.

CIARAN RYAN: Thank you, Gerald.

Brought to you by Liberty.

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Allow us R500000 once off tax free savings as well. Why a limit of R 33000 per year, should be no limit per year. I’m nearing retirement but at R33000 per year I’ll probably be dead by the time I reach the R500000 limit. Let me enjoy some tax free growth as well. Sure if you’re in your 20’s you have enough time to take advantage of the annual limit. I feel that the annual limit discriminates between young and old.

This originally came up in the October 2010 White Paper on TFSAs. They mentioned the possibility of having an accelerated path to the R500k for those over a certain age to the extant that at age 65 one could have the full amount in TFSAs. Unfortunately this was never taken any further. It would have been ideal for the tax-free withdrawal of R500k from retirement funds – assuming that this hadn’t been previously used for retrenchments/previous withdrawals.

Even for those retiring prior to age 65, it would have allowed for planning for having the readily available money to top up what was already in that space.

Its sad that the quality of research has been so poor. I personally have been saving 40% or more of my income only to have a disability income claim repudiated, so there are a number of anomalies on the institutional and regulatory side that have not been addressed. In addition our gross saving (between 15%-18% of GDP) is actually comparable with some high growth countries, its our net of debt numbers that appear superficially worrying.However one has to juxtapose that against our age structure.

Most countries such as Japan, Scandanavia, Australia and the US avoided the capital widening problem by using actuarial funding, that is by adjusting their balance sheets for the inter-generational assets created by government investment into future generations. This was the so called Muck- raker revolution that “scared” Roosevelt more than the communists. The size of the ” social security obligations” was daunting but Roosevelt a man of faith stuck to his guns by introducing it. The Teddy-bear is as a consequence a symbol of hope and courage to the youth, a symbol of the demise of child slavery and the dream of true opportunity and fairness. Today we all trust in the dollar reserve system.

South Africans are battle hardened. We experienced the Zuma Tsunami.
Why save money when it was losing value? from R10 to R15 to the USD?
How is that? 50%

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