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Most households cutting costs, prioritising job/income security – survey

‘People are more aware of the dangers of their debt, with about 50% paying it down. But there are other questionable choices…’: John Manyike – head of financial education at Old Mutual.

FIFI PETERS: Who would have thought that it would take a pandemic like Covid-19 to get us taking – and thinking about – our finances more seriously. Well, according to the Old Mutual Savings Monitor, most South Africans have cut back unnecessary expenses. They are trying to pay down their debt and they’ve even topped up their savings for a rainy day. John Manyike, the head of financial education at Old Mutual, joins us for more.

John, thanks so much for joining the show. It seems like things are changing for the better in terms of how many South Africans are thinking about their money. Is that a true reflection of the latest savings monitor?

JOHN MANYIKE: That’s correct.

We found that about 87% of the people we surveyed claimed that the pandemic has changed the way they think about money and the way they manage their finances.

So it looks like they say don’t waste a good crisis. That’s a positive and it comes on the back of about 38% reporting that they are actually earning less than they were before the pandemic.

I might say South Africans are generally resilient and very optimistic, and we quite like what we are seeing in terms of some of the behavioural shifts, with people adjusting their lifestyles and spending habits, about 62% cutting expenses where they can, and then people planning ahead. We see 37% of them building up a financial buffer to handle a future financial shock, especially now that we have a second wave, a third wave – and who knows how many waves we’ll have.

And last but not least, we are also picking up that people are more aware of the dangers of their debt, with about 50% paying it down. But there are other questionable choices, unfortunately.

FIFI PETERS: Like what?

JOHN MANYIKE: Well, of course you also do have instances where some I guess might’ve had forced choices that they had to make, and there are people who are dipping into their savings, cutting down on medical aid, life insurance – including short-term insurance. Short-term insurance for me was an interesting one, because we know that about 70% of the cars on our roads are not insured. So when people start taking such decisions, imagine if you’re paying an instalment on a car and then voila, there’s a problem with an accident or a theft, and you have to continue paying for a car that you’re not driving. So those are not such good choices that we saw.

And then we also saw a bit of an increase in borrowing, particularly unsecured loans. We also did pick up – and this is also in line with what we have from the National Credit Regulator – the highest number of first-time defaulters in the first quarter of this year. These are people falling behind on their payments.

FIFI PETERS: Okay. So it’s a mixed monitor this time around. But I want to emphasise your point of this slightly improved behaviour that we’ve seen in some areas of money management being forced, because with a lot of the cutting back of expenses and the downgrading of cellphone contracts, even of gym contracts, it seems as though this is money that is being saved for the now. Even this emergency fund that you’re talking about sounds like this is money that is being saved for a possible rainy day in the short term.

So how much of the savings is actually going towards long-term investments or long-term retirement planning?

JOHN MANYIKE: I think from the sample it does look like a lot of it is short term. We see this when we look at the number of people who hold more than one stokvel. So this is an increase in the number of people who hold more than one stokvel, and that tells you that people still believe in that, which again questions whether we really have a culture of savings in the country.

My argument would be, well, not necessarily if you look at the fact that people are saving through these informal savings, which are your stokvels.

But the biggest challenge where we need to deal with the issue is long-term investments. I think we need to make sure that that distinction is quite clear, because if you look at most of those stokvels, it’s mainly your grocery stokvel, end-of-year expenses, school fees. Very few would actually be for buying property, which is a good trend where people are in some of these property stokvels. So really it’s, as you correctly point out, such a mixed bag.

FIFI PETERS: John, I must declare my conflict of interest, I’m part of a stokvel. And guess what, it’s my month to get go gola (paid). But I think that the message that you have conveyed is very clear. There have been some good money habits that have been formed in this time, but it’s about ensuring that when things do blow over and when things do go back to normal, we keep up with the good habits and we continue to cut back on the bad.

John, we’ll have to leave it there. Thanks so much for your time, John Manyike, the head of financial education at Old Mutual.

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