Save now, smile later

By Leya Mall | 23 July 2018

July is marked as South Africa’s national savings month by the South African Savings Institute. The initiative serves as an awareness campaign because South Africans have a very low savings ratio

South Africa’s savings are disturbingly low, nearing crisis levels. The household saving rate in SA decreased to -0.2% in the first quarter of 2018 from 0.2% in the fourth quarter of 2017, according to Trading Economics. Personal savings, it says, averaged 4.8% from 1960 until 2018, reaching a record high of 23.8% in the second quarter of 1972 and a low of -2.7% in the fourth quarter of 2013.

While it is not clear if the historical data stemming from the Apartheid era are accurate in terms of measuring all South Africans, the situation is clearly urgent.

Prem Govender, chairperson of South African Savings Institute (SASI), says the overarching aim of July Savings Month is to get people “to examine their sending habits and how best to arrange their financial affairs so that they can start and maintain some kind of savings programme”

Bearing in mind that many South Africans simply cannot afford to save, for those who can, it is frivolous spending that often trips them up, says Zainab Hoosen, a financial planner for Kestrel Consulting Services. “South Africans need to bear in mind the sacrifice and discipline needed to save,” she says. Avoiding excessive and unnecessary spending is critical, otherwise people will not have enough for important life events, for example, a wedding or buying a home. Focus on the long-term goals, she says.

Govender believes that both financial services companies and individuals benefit from July Savings Month. “If individuals take heed of the various messages during savings month, then they would look to either the banks or the investment houses to start a programme. This way they benefit from having the experts grow their money and the service providers are attracting more business.”

Another area that prevents people from reaping the benefits of long-term savings is cashing in retirement savings prematurely. Sovereign Trust SA managing director Coreen van der Merwe says: “Try not to touch the funds that you are saving and investing in your retirement plans unless it is absolutely necessary and you are left with no other choice.”

Hoosen says a savings month alone is not enough to deter members from cashing in their retirement annuities. Guidance from a financial advisor is important. “The strength of the advice coupled with the member’s determination to protect and grow his/her financial planning for retirement is ultimately the determining factor,” she says. “Furthermore, a generational habit of well-planned financial planning would carry through intrinsically as a result of a greater enthusiasm to educate one’s family on wealth creation.”

One factor that makes a huge difference to your returns is to start saving early. Van der Merwe says the effect of compound interest over time is “astonishing”. Furthermore, she advises South Africans to “take a long-term approach with the goal of beating inflation, which is probably one of our biggest threats in South Africa”.

Making informed decisions is also important. Van der Merwe says investors need to understand the various levels of fees and the risks involved after looking at the options objectively.

Govender says that in the long term, efficient savings would “not only benefit the individual but also the government. If individuals can take care of their own cost of living at retirement, then they cease to be a burden on the state.”

Hoosen also encourages parents of those entering the workplace for the first time to encourage their children to meet a financial advisor to discuss setting up financial planning tools.

Retirement annuities and tax-free savings accounts are great places to start. For a more in-depth analysis of investing in TFSAs, be on the lookout for this week’s article on the Tax-Saving South African!