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  Pensions these days are like state sponsored theft....  

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More than 70% of middle class has financial flu

Short-term debt biggest source of stress – 2017 Sanlam Benchmark survey.

JOHANNESBURG – Almost 73% of professional, middle class South Africans experience financial stress.

This is according to the 2017 Sanlam Benchmark Survey, an annual retirement funding study, which surveyed more than 1 300 employees about their financial wellness. The survey described financial stress as emotions associated with the difficulty an individual or household may have in meeting financial commitments due to a shortage and/or misuse of money.

“If it was something else – if this was a disease – this would be an epidemic. If this was the flu, then 70% of South Africa said they’ve got the flu at the same time. It would be headline news,” says Viresh Maharaj, CEO of Sanlam Employees Benefits: Client Solutions.

The middle class is the spine of the economy and the tax base and a lot of South Africa’s sustainability as a nation depends on this group. The fact that almost three-quarters of this group is financially stressed “is a scary place to be”, he adds.

Almost a quarter of those experiencing financial stress said they were stressed about the issue all the time.

The five most significant sources of financial stress were short-term debt obligations (car payments, credit cards and personal loans), not being able to save for the future, not having enough for unanticipated emergencies, extended family financial obligations or ad hoc requests for financial support and paying for school or university fees.

Although there are often suggestions that poor financial decision-making is the result of a lack of education, the findings suggest that this is not the case. More than 95% of the respondents had a post-matric qualification. Almost 80% of respondents had a diploma, degree or post-graduate degree. Just over 10% had a Masters or Doctoral degree. More than 60% of the respondents earned more than R300 000 per annum.

While very demanding economic conditions have contributed to the financial difficulties many South Africans are facing, the culture of consumerism has added to consumers’ woes.

Maharaj says the South African economy is being driven by consumerism. Research from UCT’s Graduate School of Business suggests that when it comes to generational shifts – particularly in the black population – conspicuous consumption is a means of demonstrating competency.

The country also has fantastic advertisers that create a demand that people feel the need to fill. While this is what the advertising industry is supposed to do, it also speaks to a culture of consumption on steroids, which needs to be addressed, he says.

Although short-term debt obligations are already at the top of the list of stress sources, “frictionless lending” is still common and it may be easier to get a loan than to invest a similar amount.

While the National Credit Act includes various checks and balances and has protected South Africa against many bad outcomes experienced internationally, it doesn’t address the fact that being able to pay for something is not the same as being able to afford something, he says.

Similarly, although the Financial Advisory and Intermediary Services (Fais) Act has been implemented for good reason, it acts as a barrier for lower income earners to access advice because it is too expensive, Maharaj adds.

The findings suggest that most middle-class South Africans may be struggling to make ends meet in the short term, which may limit their ability to adequately provide for their retirement.

According to the survey, not being on track to retire ranked as number 6 as a source of stress, implying that individuals may rather be focusing on their immediate financial concerns.

Maharaj says over the last number of years they have progressively discovered that the problem of retirement funding cannot be addressed in isolation. Moreover, there is no silver bullet that would solve the retirement funding issue once and for all.

“You can’t look to increase an individual’s net replacement ratio from 50 to 75[%] by focusing on their contributions and investment returns. That individual is part of a system – a system where there is an employer, there is a family, there are socio-economic constraints [and] there are human emotions at play.”

The net replacement ratio is the percentage of a person’s final salary immediately prior to retirement that he or she receives as an income in retirement. A very broad rule of thumb suggests that individuals should aim for at least 75%.

Roughly 17% of the respondents indicated that they have made no provision for retirement and consider themselves “in trouble”. Over 60% said they would work beyond retirement age, while 73% said they would reduce their current standard of living.

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Mart-Marie de Jongh

Mart-Marie de Jongh

Gray Swan Financial Services (Pty) Ltd
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Some of the most qualified people I know are some of the worst decision makers when it comes to money. A piece of paper doesn’t automatically turn you into a Buffett.

That is because they think they can out-earn their financial stupidity.

Unfortunately it is usually not the income side that is the problem, it is the spending side.

The middle classes aren’t typically good with money, they just have a high enough wage to avoid their bad management being obvious, as articulated very well in the book “Rich Dad, Poor Dad”.

It says the middle classes buy liabilities thinking they are assets. The book defines any “asset” that makes money vanish out the door each month as a liability not an asset…so cars for sure, but even houses aren’t truly assets.

The high levels of personal debt, and the lack of retirement savings are simply the is the result of a individual’s perception of the time value of money. It has got nothing to do with education, intelligence, level of income or hard work.

The perception that a R100 note will be worth the same, or less in 10 years time, logically leads any person to spend it now(and to borrow to spend if he does not have it now).

People that think like Warren Buffet, don’t see R100 as R100, but as the value it will have after 10 or 20 years of compound growth. Such a person realize that R100 has the value of more than R1000 to him, and to spend R1000 on something that is worth only R100 will be stupid and crazy.

Our level of indebtedness is simply the reflection of our understanding of compound growth and to what extent we believe in our own future.

“Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.” – Albert Einstein

The owners(shareholders) of the banks are the modern day feudal landlords, as all the over-indebted people are eagerly committing themselves to slavery to provide the bank’s profits.

True, on the compound interest part. Although not all debt is bad. Buying a property with debt and allowing someone else to pay your debt is smart.

Buying rental properties with debt is a tried and tested way of getting to bankruptcy court. I’ve seen it happen many times. The tenant stops paying rent (which happens more often than you would imagine) and then you lose your job (or something else like a medical issue, etc) and you cannot carry the bond, your house of cards collapses and you go bankrupt.

All debt is bad for the following three reasons: 1. It adds risk. 2. It costs money. 3. The borrower is slave to the lender. Try skipping a payment and see what happens.

MoneyChief, I hear your argument. Like any business there is risk. Riskless business is not a business, its arbitrage. Credit is an integral part of most businesses. From farmers to property developers to importers to traders. All use credit. Credit increase scope for profit (in absolute terms) but also scope for losses. I guess its about managing your risk and having an exit strategy.

How else do you get 90% of todays rand value with 10% money put down? You are only really are paying back the interest, the capital borrowed amount was not yours anyway. You are getting todays value paying off as the real value drops. I was paying back R300 twenty five years ago. Today that is two bags at the shop if you are lucky.

This house of cards is going to collapse sooner rather than later, with the interest rates increases coming our way….all those who bought property (highly overpriced in the case of Cape Town), will be facing higher bond repayments, over and above the bad debts of tenants who can’t/won’t pay rantal. Try evicting them…..

Although, I understand your comment- your reasoning seems to be thwarted by your own logic. If R100 now is worth R1000 later. How much is R1000 worth later?….R100… So in those many years time your R1000 will only buy R100 worth of goods…

Unless…

You have mastered the art of beating inflation- to me, money seems (by my own perception) to almost half every 5 years. So to beat real inflation- we should be aiming for around 10% per annum to have any real returns.

I sit and watch all these financial advisors trying to sell people investments when they are loaded with debt. Remember paying your house off early could give you over a 100% return on investment. But the brokers don’t make money telling you that. You need Financial Fitness

I must add that, grudgingly, I attended a workshop held by financial fitness group. I had debt , two credit cards maxed, bond, cars on HP etc etc and FINFIT turned the light bulb on re COMPOUND INTEREST. the scene was set and in TWO years I was DEBT FREE – it was hard graft but well worth the satisfaction that no financial institution has earned R1.00 of interest from me over the last 17years! well worth the two year sacrifice!

I had the same light bulb moment back in 2008. If you don’t have any debt payments, it is very easy to save and invest.

Debt is compound interest working against you.

I wonder how many articles like this will have to be written before there is a groundswell realization that what you are really working for in your life is to enjoy a comfortable twilight (retirement) lifestyle and enjoy the fruits of your working life. If you fail to make adequate provisions for your retirement you will be a drain on your kids and they will perpetuate your poor planning.
Those who seriously believe that they will work beyond the company defined retirement age are dreaming – the company will bullet them either before or at retirement age.
People need to stop dreaming and start looking at realities of life otherwise they will end up as paupers in retirement

Correct, the biggest investment you’ll make in life is your pension/retirement.

I want to smash the tv every time I see some estate agent or bank advertisement with the words “…the biggest investment decision you’ll ever make is your home/home loan”.

You must also enjoy life NOW. You may NOT make retirement~~

What pension? The government pension fund is cracked open sending money to Dubai and other places. Wait till your private pensions fund has to support that shortfall.

I tend to disagree that the point of working is to secure a comfortable retirement. That’s a bleak and uninspired view of life and serves the insurance companies, investment advisors and other leeches looking for a slice of your money. The point of working is to secure a quality of life at all stages of your life. If you are capable of living an above average lifestyle then great, and even better if you can contribute to society and future generations.

The “old” traditional system of working for a pension and investing does not seem to pay off in the 21st century.
It seems that the new phrase is “He who invests in the 21st shall get poorer”.

How many people lose money when they invest it?
The middle class just keeps trying and losing more all the time.

You have micro and macro economics and then America.

Micro economics where the middle class work long hours “if” they are lucky enough have a job, drive through clogged roads with pot holes and non functional traffic lights, pay a few months of their salaries for poor performance public schools. Spend most of their salaries on food.

Macro economics, if you are lucky enough that your micro economics work out then some Politicians seem to make poor decisions and wipe out 10% of your wealth every year and tell you to work harder next year and increase taxes to make up for their incompetence.

Then if you survive the macro and micro economics, you have America which create conflict in some parts of the world so as to drive the Dollars back home.

When will the middle ever win? 🙂

The problem is really people invest in high risk products because they want to become rich now and then cries foul when they lose their investments. Also I know of people who contribute the smallest allowed percentage of their salaries’ towards their pension funds with no other investments and then act so surprised when they cannot even contemplate retiring. Also when retiring people payout huge cash amounts of their pensions leading to not only high tax obligations but less annuity income in the future.

Through bad articles and advice some people have also been convinced that they do not have to have a paid off home when retiring and then cries foul when they struggle to keep up with high rent in retirement.

My paid off home cost about R1200 to live in against R20 000 to rent. Who said your home is a bad investment? At least it is low cost and an asset if something goes wrong.

So true. The reality is this: If you retire today and assume that you will get a consistent yield on your retirement capital at a rate of 3% above inflation, and you want to have a post retirement income that increases annually in line with inflation for 20 years after retirement, then you need about R1.8m in capital for each R10,000 per month of post retirement income. If you want to retire now and you do not have that, you are in trouble and your choices are limited to postponing retirement, finding a part time job after retirement, or dropping your standard of living after retirement. If you are young and will only retire 35 years from now, you will have to invest, on the same assumptions, R2,350 per month and increase that annually by the inflation rate, for every R10,000 p.m. (in today’s money) of post retirement income.

Modern economies are driven by consumerism and credit markets. Financial stress is part of the machine and keeps it turning as does the article which serves to promote anxiety and the desire to consume a financial education as indicated at the end of it.

Cars are the downfall of many because the first thing nearly every
Tom, DICK and Harry does in South Africa who starts to earn a decent salary, is to go out and buy a new BMW 3 series…

Worlds biggest waste of money is a new car. Swallow your pride and go second hand you save a fortune. Be hard on the salesman too grind him or he will grind you.

The reason that every Tom, Dick and Harry gets a beemer is because every Sally, Susan and Sarah wants a man with a beemer 🙂

Wait until their Balloon explodes and they don’t have the necessary money????????

No jokes. Half a bar for a half decent second hand car is crazy.

Soon the same half a bar car will cost a bar the way the rand is going

A major reason never mentioned is the never ending assault on the population to have “fun”.

This has brainwashed nearly everyone to have fun to the extent that many state that the object of life is to have fun.

This assault is particularly insidious to nearly hysterical proportions by radio and TV such as DSTV.

Put fun not at the top of your list. Put it at the every bottom. No need to worry, you will have fun in any event without buying into the lie.

Buy what you need and not what you want. Spend within your means and you will sleep well at night.

Hence why some off us do not save or invest; or contemplate not saving or investing in the future.
The perception is that our R100 today will buy R1 in 10 or 20 years time.

The same rules found in North America, Western Europe and Western Asia do not seem to apply to us in South Africa.

Maybe we have to do things inverse of what others do in the first world in order to outwit our smart politicians.

The biggest problems in SA when it comes to saving and investing:
-Expensive Alcohol (clubs/lounges)
-Dstv
-Expensive Clothes
-Date every woman u meet(liabilities)
-Expensive Cars n Phones
-On Social networks you must trend for useless things
-Renting in Midrand (Gauteng)
-Buy at Woolworths
-Eat take aways everyday
-Loans everywhere

If you dont have or consume these things you are struggling according to society.
They say they work hard for their money if you ask them ‘Why you poor yet you earning good’?

“If you don’t have or consume these things you are struggling according to society”

I don’t get this point. Why do you need this cr@p for society? Surely it is your choice? If you choose not to have this stuff what are the ramifications? Maybe try cancelling the clubs, DSTV, BMW, flashy apartment etc. and see what happens. Don’t just go with what is assumed. Always test your theories before you adopt them. Give it a try, you may be surprised that life is pretty good without all those trappings.

Rather buy a BMW and enjoy it than have a politician do it for you with your own money 🙂

Surely it’s far more difficult to build up a nest egg in this country as opposed to the developed world.Using the rule of 72 prices would only double over 36 years assuming an inflation rate of 2% in the UK for example.In SA lets be generous and assume an inflation rate of 6%.When Joe Soap retires here prices are at best 8 times what they were when he started working.Surely we’re on a hiding to nothing!

I think it must be harder in developing countries.

In developed countries if you are careful and sensible you can retire with substantial assets even on comparatively low incomes and doing nothing special.

Why should we invest? …

Not too long ago there was an article comparing the earnings or bonuses of the big four banks CEO(s) in SA.

People must live a balanced live. Spend to enjoy the moment, but also save for your retirement. I think their is nothing more scary than to retire, when you know you had not made enough provision for the future.

I wonder what percentage of income-earning individuals in SA prepare and live according to their budget.

My grandfather had three personal finance rules:
1. Live according to your budget.
2. Spend less than you earn.
3. Live debt free.

Agree. Rather wait a few months and pay cash and have no debt, as apposed to buy now and have debt.

I have asked this question before and never received an answer. Take say a 3 year period and compare after tax saving return of a deposit amount (say 15%) to buy a vehicle to paying the 15% deposit and financing said vehicle. Take into account vehicle price increases. All mid-range. I just do not have the time to find the data to do the arithmetic.

How do you mean you do not have the time? How much time do you spend on buying a car? Less than half an hour? If you rather let a salesman persuade you to buy a car by borrowing at a high interest rate than spend half an hour searching the internet or setting up a spreadsheet (which you can download free) and doing the necessary calculation yourself, you deserve what you get.

Just to reply to Hun. I’ve bought all the cars I am going to buy for cash. The spreadsheet won’t give me the car price increase or tax rates. It is what is called a theoretical exercise.

The fault lies completely with those rascals – the Jones! Everyone wants to keep up with them:)

don’t forget the influence of brand marketing gurus. Targeting the youth and of today, getting them hooked on brands and “must have” consumer products, this way they ( the brands) secure for themselves a future of “must have” user / junkies.

Indeed, my neighbors just got Italian designer tiles installed at their house, R400 a square meter. Should I do the same? 🙂

In SA unfortunately it is that one nearly get one shot at “securing retirement”, if anything in-between happen, for example a business that goes broke, or an unforeseen retrenchment, to start over and make it in time to retirement is almost impossible.

Take your risks early in life, so that you still have time to negotiate any shortcomings. Once hitting 40 its almost to late.

Here’s a sure fire way to ensure that you struggle in your retirement:-
1) have a brood of kids 2) buying a house whose value is greater than 4 times annual salary, and, then buying bigger and more expensive real estate because you believe you have arrived 3)cashing in a portion of your pension each time you change jobs 4) buying a motor car where repayments exceed 12% of gross salary 5) having the latest and smartest cell phone on the market 6) failing to liquidate monthly expenses on credit cards every month 7) failing to run a budget of income and expenditure for the household 8) spending more than 3% of annual incomes on entertainment annually 9) blowing your bonus before you get it 10) accepting all bank charges at face value and not questioning them. There are many others that can be added to the list but the reality is if you don’t secure your pension funds future payout you will either end up having too little or sponging off your kids merely to survive. There are 3 matters which very few people consider also that of forced early retirement, retrenchment and the company that you work for folding – all have a significant effect on your pension

“have a brood of kids”…”end up having too little or sponging off your kids”

Now I get it!

Well look at the education they get, I would ask for my money back if I was that “professor”.

Been saving over 50% of my salary every month (by living extremely frugally). I’ve put the savings into my home loan. During this time the rand went from R7 per USD to R14 per USD (while the value of my property remained stagnant)…

Should have just bought USDs OR enjoyed the money like everyone else 🙁

You should have diversified. Some money in the house, some money in local equities, some money in overseas equities.

Unfortunately society dictates that you MUST have an expensive car,expensive house with expensive furniture,expensive clothes and expensive cellphone.Otherwise you are looked down upon and the odd one out.You will be seen as struggling and unsuccessful,and who wants to have friends like that?…Sad but true.

Snobbery is very bad in South Africa especially. In Europe people don’t really care what car you drive. The CEO of the company I worked for drove an old Polo.

True in big cities, not so much in the countryside and towns where flash cars are certainly valued.

However then postcode snobbery certainly exists big cities and is crippling for those who play. E.g. plenty of young wannabe poshos in London earn good money but pay 50% of their disposable income to rent a tiny mouldy basement room without sunlight, because they can say it’s in Chelsea.

It’s human nature in a forward-looking culture to find some way to compete against the Joneses…

Who wants friends like yours..

I don’t have friends like that.It’s what I see with other people,and the reaction I get from some people.

So as LouisV says if you want to retire now and you need 50k per month you need 9 million stashed away somewhere and that assumes your money keeps growing at 9% per annum.With actual inflation around 10% you actually need growth of 13%.As for somebody starting work today they need to save R2350 of their disposable income of R10000 per month.How does one live on R7650 per month today.I would suggest that both scenarios are impossible for at least 99% of the populations even if your money grows at 3% above inflation and that’s also looking highly unlikely!

You need more capital, surely, to get 50k pm?

I’ve read you shouldn’t spend more than 4% of your capital per year in retirement and only 3% if you retire early.

Ignorance causes suffering.
Irresponsibility causes suffering.
Living your life based on what others think of you causes suffering.
Making irrational decisions based on emotion rather than objective facts causes suffering.
Expectations cause suffering, if you have no expectations you cannot be disappointed.
Lack of gratitude causes suffering.
If we don’t run our own lives someone else will, which causes suffering.
Rationalising and passing the blame causes suffering.
A great education does not mean you have common sense.
An inflated ego causes suffering.
……………..

@Foshan Thanks- I love this comment you made: “If we don’t run our own lives someone else will,”

This is so true. If you don’t decide how you are going to live your life somebody else will decide for you. Take charge of your life, stop following the herd, they are heading for a cliff anyway. Currently your bank, the TV advertisers, the telesales guy, your favorite celebrity are telling you how to spend your money. Forget them- you decide.

Pensions these days are like state sponsored theft.

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