South Africans prioritise savings despite ongoing financial pressure

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JEREMY MAGGS: South Africans remain under intense financial pressure, but new findings from the Old Mutual Savings and Investment Monitor suggest many households are still trying to protect their savings and plan for the future.

Thabo Hollo is programme manager for financial education at Old Mutual, and joins me now to examine what the research reveals about financial resilience, retirement readiness and the value of saving with a clear purpose.

Thabo, a very warm welcome to you. What does the research tell us about how South Africans are protecting their financial futures, in spite of the pressure, as I’ve alluded to, on household budgets?

THABO HOLLO: Thanks, Jeremy, and thank you for the opportunity. What it tells us, at least the research findings, is we continue to be a resilient bunch and we still have hope.

It shows us that we’re gaining more and more confidence in the economy, in our finances.

Yes, it doesn’t take away the fact that we’re still under massive pressure. It doesn’t mean we’re not experiencing some financial strain.

However, our confidence level is going up and up and yes, we continue to be a nation of hope, a nation of resilience.

JEREMY MAGGS: Consumers, according to the monitor, suggest that around about 22% is being allocated towards saving. That would be household income. How should we interpret that figure?

THABO HOLLO: It means we recognise that we still need to save for goals. We still need to save for emergencies.

So the bulk of the savings – whilst there is formalised savings, we are also seeing a whole lot of informal savings in the form of stokvels.

So that tells us that people do have some sense of goals.

They plan the entire year, perhaps towards the end of the year, to have a better Christmas or festive season. So we do save for goals.

We also are saving for some emergencies. It might be a small amount in terms of the savings in the context of the broader picture. However, we do still save for emergencies and for goals.

JEREMY MAGGS: Does that reflect though, and I think there might be a downside here, does it reflect genuine financial resilience, as you’re suggesting, or do you think there’s also the possibility or the reality that some households are simply sacrificing essential spending to keep saving, as difficult as that might be?

THABO HOLLO: What we’re seeing, and part of the research finding, is we are also overspending in terms of some aspects of our life.

So yes, there’s an element of sacrificing, in terms of certain parts of our lives.

We don’t go out as much as we used to. We’ve sacrificed in terms of the brand affinities and what we used to consume. But then we put that money into savings.

However, there’s still an element in terms of our research findings of overspending in some instances.

So yes, it might sound all glorious, but there’s also an element of saying I’m a little bit worried about the future, although I’m still optimistic. So I’m going to put a little bit on the side just in case of emergencies, just in case there’s a particular emergency that creeps up in the future.

So yes, we take money away from some of the previous activities, but putting that into savings, which is also a good thing.

JEREMY MAGGS: Not surprisingly, retirement remains the leading savings goal. Yet half of working South Africans also say they’re not confident they will have enough. Why is that gap still so wide, do you think?

THABO HOLLO: I think there’s also the realisation that whilst we are putting money aside for retirement, the reality is the gap between what we should be putting aside and what we are putting aside is widening.

So we know for a fact that at some point we will be faced with the reality of retirement, but then we also have that feeling that we’re not going to be adequately covered.

That is also reflected in the numbers, that gap, the reality illusion gap, still remains there to say, in reality, this is what we can afford, but we should be doing more. So there’s that confidence level that we lack in terms of looking forward to our retirement.

The reality, unfortunately for now, is that we’re not saving enough, at least to close that gap between what we will require at retirement and what we’re saving at the moment.

JEREMY MAGGS: I’d also suggest, and correct me if I’m wrong, that probably the main problem is people start too late, but I guess they’re also saving too little or withdraw their money when financial pressure starts to rise. But it’s the starting too late, which is probably the biggest problem.

THABO HOLLO: Starting too late and not taking advantage of time when we start working, that’s one contributing factor.

But the biggest at the moment that we’re seeing is also withdrawing some of our retirement [funds].

Each time we hop between jobs, we withdraw the funds instead of putting it aside for our future retirement.

That also contributes to the pressure that we find ourselves in. Because at the age of 40, 45, and when you start saving then, you are a tad bit late and might be required to save a little bit more. But because of affordability issues, you might not be able to save as much as you should be.

So the message here is start early and each time you change jobs, do not withdraw your retirement funding. Keep it in there so that at least you don’t have to act in an emergency type situation when the time comes.

JEREMY MAGGS: And just a final question. Your study, Thabo, also shows that 81% of working South Africans have a specific savings goal. Explain to us why having a defined goal improves the chances of success.

THABO HOLLO: There’s psychology behind it. At least you’re working towards something. It’s very clear. It’s very defined. In many instances you can visualise it. You can at least know what you’re aiming at.

In that way, it gives you a little bit of motivation to say, this is what I want to achieve. Therefore, I’m going to put money aside for that specific goal.

We see people, for instance, using visual depictions of what they’re trying to achieve.

It works on your psychology because savings, Jeremy, in many instances is a psychological thing, it’s not just the money thing.

So when you have a clearly defined goal in mind, which is a fantastic thing, then that helps you and motivates you in terms of the amount that you need to be putting aside for that particular goal.

JEREMY MAGGS: Thabo Hollo, thank you very much indeed, you’re the programme manager for financial education at Old Mutual.

Brought to you by Old Mutual. 

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