Fin24

SAfricans live for the now, ignore savings

2012-05-31 19:41

Johannesburg - Like many South Africans, Nkululeko Makhaya has only the most basic financial strategy for his future: a pension contribution deducted from his salary and 100 rand ($11.90) put aside each month towards family funeral cover.

The 35-year-old admits this is woefully inadequate, but with only a modest salary and obligations to both his immediate and extended family, there is barely enough each month to see him through to the next paycheck, let alone save.

Cue the future: what happens in 30 years when he is still very much alive but retired, and inflation has eaten into his pension?

"I'll get by somehow. Hopefully my children will have good jobs and take care of my wife and me in return for the good education I'm paying for now," said Makhaya, a salesman for a Johannesburg cleaning products firm.

"I might not even live to retirement, in which case the funeral policy will come in handy."

In fact, Makhaya is setting aside more than most people in South Africa, where the majority of households are forced - or choose - to spend most of their income, and just keep their fingers crossed about the proverbial rainy day.

The weak savings culture is a big headache for the government because it hampers speedy economic growth. With less cash sloshing around its banking system, South Africa cannot finance the infrastructure such as roads, ports and broadband Internet needed to move its economy up a gear.

Tellingly, it fares poorly on both growth and savings when compared to peers in the BRICS bloc of developing countries.

This year, South African GDP is forecast to grow at a rate below 3 percent, against 8 percent for China and 7 percent in India. And its savings rate of just 16 percent of GDP compares with 53 percent for China, 34 percent in India and 20 percent for Russia. Alarmingly, it appears to be getting worse.

"A strong savings culture is almost a prerequisite for sustainable economic development and South Africa has in the last 10 years or so gone backwards very fast," said Peter Dempsey, deputy CEO of the Association for Savings and Investment South Africa, a trade group for firms that provide savings products.

Saving nothing

"Households basically save zero percent in aggregate, meaning at a national level household income equals household expenses. If you go back 10 to 15 years ago it was probably sitting at 6 to 7 percent," Dempsey told Reuters.

Net household savings, mainly in the form of retirement funds, long-term insurance, unit trusts and bank deposits, have been in negative territory since 2005, the Treasury says. In contrast, household debt as a ratio of disposable income remains unsustainably high at 75 percent.

Finance Minister Pravin Gordhan and his predecessor, Trevor Manuel, both begged South Africa's 50 million people to save more, but their entreaties were trumped by the power of bling - those with disposable income would rather spend it on the latest flat-screen TV or smartphone than put it away for the future.

This partly reflects South Africa's racially divided apartheid past in which millions of marginalised blacks had no access to credit and other financial services. They are now grabbing the chance to acquire assets at the expense of saving.

"It's not necessarily a bad thing," said Colen Garrow, an economist at Meganomics.

"Low savings levels should be seen in the context of assets such as homes and motor vehicles that new consumers purchased after the first democratic elections in 1994. Before that, most South Africans were simply not able to buy such assets.

"But I can see why Pravin Gordhan is worried. If you can't finance investment out of your savings - which we can't - then you're going to have to go out of South Africa and borrow on international capital markets. That's exactly what's happening."

Under apartheid, black South Africans with little access to traditional banking came up with informal savings schemes like "stokvels", in which a small group of around a dozen people - usually women - gather once a month and pool their savings.

Each chips in a small fixed sum, usually between 100 and 1,000 rand, and a different member each month gets to take home the whole pot. Peer pressure ensures all members contribute, providing a convenient way for women in poor townships to save up for big purchases like furniture.

An estimated 40 billion rand ($4.8 billion) is invested in stokvels, a recent study shows, but the money rarely finds its way it into the formal financial system, denying the economy access to funds that could help fund crucial investment. Banks and investment companies are trying to get access to that money.

Sluggish growth represents a major political threat for the ruling African National Congress, the former liberation movement which turned 100 this year but is still learning how to run a sophisticated emerging market economy.

The government says growth needs to hit 7 percent to make any sort of a dent in unemployment that, at 25 percent, is crushing the dream of the "Rainbow Nation" by perpetuating the racial inequalities of apartheid and fuelling one of the world's highest rates of violent crime.

Angry township protests by young men with little to lose are already a daily occurrence, and, after uprisings across the Middle East and north Africa in the last 18 months, top ANC officials admit they sitting on a powderkeg.

Spend, don't lend

However, with bank charges stubbornly high despite government pressure to get them down, and interest rates at 30-year lows since the end of 2010, there is very little incentive for most South Africans to save.

Yields on 3-year domestic debt are now at 6.5 percent, close to historic lows and compared with 8 percent five years ago.

Meanwhile, banks, credit card firms and shops make it all too easy to borrow, despite a law introduced in 2006 to try to enforce responsible lending.

Which is why Nkululeko Makhaya's neighbour in the lower-middle-income Johannesburg suburb of Bramley drives the latest BMW model. And why 23-year-old receptionist Sindi Mpheko can only afford to rent a small backyard room in the rundown township of Alexandra but always turns up for her job in the Sandton financial district kitted out in the latest trendy wear.

"I'm just taking care of me for now, no responsibilities. I want to have fun while I can and worry about the future later, in my late twenties," Mpheko says, a touch defensively.

She is among the 90 percent of South Africans the Treasury says are not tucking away enough savings and investment to enable them to retain the same living standard on retirement.

Even higher income earners such as chartered accountant Carol Khozwayo would rather invest in "visible" assets such as property than put money in the stock market or government bonds.

Khozwayo and her husband have re-mortaged their house in the upmarket Fourways suburb of northern Johannesburg to purchase two smaller town houses they rent out to finance the repayments.

The 2007 collapse of asset management firm Fidentia in a fraud scandal in which millions of rand - including pensions for miners' widows - went missing, has also given the savings industry a bad name.

"I would rather see physical evidence of my investment and be assured that my children's future is fairly secure," Khozwayo said. "Look what happened to Fidentia.

Comments
  • eric.hendrikse - 2012-05-31 20:18

    This government is chowing all our monies with their indirect taxes and more future taxes too come. This is why South Africans struggles to save.

  • nomen.banda - 2012-05-31 20:35

    what kind chartered accountant is that guy financing debt with debt

  • nomen.banda - 2012-05-31 20:38

    what kind chartered accountant is that guy financing debt with debt

  • Zahir - 2012-05-31 21:44

    Govt takes 50% of our income in taxes how are we going to save? We don't earn millions like u and other anc govt ministers do

  • errol.wagner - 2012-05-31 22:14

    We should not be surprised - what incentive is there to save? The government now has increased tax on dividends - we have capital gains tax - etc. Where can you put your money? If it not the government that tries to get hold of your money, inflation or the banks charged erode your savings. So what incentive is there?

      Martin-Cullen - 2012-06-01 18:17

      Quickest way to create an incentive is to give HOME OWNERS a concession on their property taxes. Example: 10 or 20% of your monthly property taxes paid into a saving account with restriction that it may not be drawn until say age 60 means that a large portion of the population

      Martin-Cullen - 2012-06-01 18:36

      Quickest way to create an incentive is to give HOME OWNERS a concession on their property taxes. Example: 10 or 20% of your monthly property taxes paid into a saving account with restriction that it may not be drawn until say age 60 means that a large portion of the population

  • errol.wagner - 2012-05-31 22:14

    We should not be surprised - what incentive is there to save? The government now has increased tax on dividends - we have capital gains tax - etc. Where can you put your money? If it not the government that tries to get hold of your money, inflation or the banks charged erode your savings. So what incentive is there?

  • kopano.mokoma.5 - 2012-05-31 22:54

    we pay PAYE,Vat,high petrol prices,now etolls r to cum,food prices r high n we should save,how on earth do we save,saving is a budden in the short rum for the working class not to mention the poor middle class who fills the most pain.just s much s it is tough for the gvt it is for us.Mr P.Gorden we r crying out for help.

  • gregg.sneddon - 2012-06-01 07:25

    There are many issues here - firstly, funeral policies are such an incredible rip-off. R100 might buy you R10000 funeral cover but for the same premium you could probably get 10-20 times more cover through a properly underwritten life policy. Secondly, the min premiums on unit trusts and ETF's have become too high - many companies now want at least R500 as a debit order. There are still a few who will take a R200 debit order but even that is too high. The alternate is that people end up with endowment products that are too expensive and have massive penalties when they alter the contracts - the industry needs to take a long look at itself before government legislates change.

  • Jack - 2012-06-01 08:00

    We surely have great incentives to save. With interest rates at half the real inflation rate and then get whacked for tax. Yes a great idea, but not for the individual.

  • Jack - 2012-06-01 08:01

    We surely have great incentives to save. With interest rates at half the real inflation rate and then get whacked for tax. Yes a great idea, but not for the individual.

  • ezradb - 2012-06-01 08:15

    At the rate that the average South African is Taxed, directly and indirectly, do they have any capacity left to invest? The main reason for the Excessive Tax we have to pay is easy to understand! Our current Government is inefficient! Officials are being paid for not working, corruption is out of control, management skills and experience is lacking, huge amount of time is wasted on non essential matters, etc etc! Let me also just mention the name Eskom, and that's almost enough!The age old saying that you should look inwards first before looking outwards for solutions is what Government should consider! Give the people of SA a reason to save as well the capability to do so!

  • Brendan - 2012-06-01 08:15

    I would rather invest my money in a small businuss that is manageable to run part time. That way you have control of what your income would be. what you put in = what you get out

  • ezradb - 2012-06-01 08:16

    At the rate that the average South African is Taxed, directly and indirectly, do they have any capacity left to invest? The main reason for the Excessive Tax we have to pay is easy to understand! Our current Government is inefficient! Officials are being paid for not working, corruption is out of control, management skills and experience is lacking, huge amount of time is wasted on non essential matters, etc etc! Let me also just mention the name Eskom, and that's almost enough!The age old saying that you should look inwards first before looking outwards for solutions is what Government should consider! Give the people of SA a reason to save as well the capability to do so!

  • Brendan - 2012-06-01 08:16

    I would rather invest my money in a small businuss that is manageable to run part time. That way you have control of what your income would be. what you put in = what you get out

  • viljoenfr - 2012-06-01 13:16

    Putting money aside for your retirement is difficult. It means you have to get by with less money now, so that you can survive later. There is no way around that and nobody is going to do it for you if you don't do it. Reading these comments makes me think that South Africans will rather blame other people for their problems than take responsibility for their own lives.

      Butch - 2012-06-01 17:51

      Consider 3 children,Varsity,Tech & High school, Medical aid, sky high because the resources were not looked after,Rates & taxes, quadrupled due to Eskom increases. Funny thing,Old Eskom built 6 new power stations in 10 years. New Eskom built nothing not even maintenance for 15 years what happened to those billions? Why was the forensic audit stopped after 2 weeks and R1,7bil in anomalies? Consider food costs and wonder why the Government sold our 2010/11 bumper maize crop to China? Consider a Zimbabwean couple after a lifetime of working, they sell up and retire with 4mill Zim dollars 15 years later a trip to the doctor costs 4mill Zim dollars. Who is responsible?

  • viljoenfr - 2012-06-01 13:16

    Putting money aside for your retirement is difficult. It means you have to get by with less money now, so that you can survive later. There is no way around that and nobody is going to do it for you if you don't do it. Reading these comments makes me think that South Africans will rather blame other people for their problems than take responsibility for their own lives.

  • viljoenfr - 2012-06-01 13:17

    Putting money aside for your retirement is difficult. It means you have to get by with less money now, so that you can survive later. There is no way around that and nobody is going to do it for you if you don't do it. Reading these comments makes me think that South Africans will rather blame other people for their problems than take responsibility for their own lives.

  • viljoenfr - 2012-06-01 13:18

    Putting money aside for your retirement is difficult. It means you have to get by with less money now, so that you can survive later. There is no way around that and nobody is going to do it for you if you don't do it. Reading these comments makes me think that South Africans will rather blame other people for their problems than take responsibility for their own lives.

  • viljoenfr - 2012-06-01 13:18

    Putting money aside for your retirement is difficult. It means you have to get by with less money now, so that you can survive later. There is no way around that and nobody is going to do it for you if you don't do it. Reading these comments makes me think that South Africans will rather blame other people for their problems than take responsibility for their own lives.

  • viljoenfr - 2012-06-01 13:19

    Putting money aside for your retirement is difficult. It means you have to get by with less money now, so that you can survive later. There is no way around that and nobody but you is going to do it for you. Reading these comments makes me think that South Africans will rather blame other people for their problems than take responsibility for their own lives.

  • viljoenfr - 2012-06-01 13:21

    Putting money aside for your retirement is difficult. It means you have to get by with less money now, so that you can survive later. There is no way around that and nobody but you is going to do it for you. Reading these comments makes me think that South Africans will rather blame other people for their problems than take responsibility for their own lives.

  • viljoenfr - 2012-06-01 13:25

    Putting money aside for your retirement is difficult. It means you have to get by with less money now, so that you can survive later. There is no way around that and nobody but you is going to do it for you. Reading these comments makes me think that South Africans will rather blame other people for their problems than take responsibility for their own lives.

  • viljoenfr - 2012-06-01 13:44

    Putting money aside for your retirement is difficult. It means you have to get by with less money now, so that you can survive later. There is no way around that and nobody but you is going to do it for you. Reading these comments makes me think that South Africans will rather blame other people for their problems than take responsibility for their own lives.

  • viljoenfr - 2012-06-01 14:14

    Putting money aside for your retirement is difficult. It means you have to get by with less money now, so that you can survive later. There is no way around that and nobody is going to do it for you if you don't do it. Reading these comments makes me think that South Africans will rather blame other people for their problems than take responsibility for their own lives.

  • viljoenfr - 2012-06-01 14:25

    Putting money aside for your retirement is difficult. It means you have to get by with less money now, so that you can survive later. There is no way around that and nobody but you is going to do it for you. Reading these comments makes me think that South Africans will rather blame other people for their problems than take responsibility for their own lives.

  • viljoenfr - 2012-06-01 15:04

    Putting money aside for your retirement is difficult. It means you have to get by with less money now, so that you can survive later. There is no way around that and nobody but you is going to do it for you. Reading these comments makes me think that South Africans will rather blame other people for their problems than take responsibility for their own lives.

  • Martin-Cullen - 2012-06-01 18:16

    Quickest way to create an incentive is to give HOME OWNERS a concession on their property taxes. Example: 10 or 20% of your monthly property taxes paid into a saving account with restriction that it may not be drawn until say age 60 means that a large portion of the population will have a retirement fund and rely on the gov. It also means that gov will not spend 100% of Home Owners Property taxes leaving nothing left for it's law abiding, contributing citizens. The same can be done with PAYE say a 5% monthly portion of the actual PAYE amount paid, to be paid into a long term retirement fund. That why CITIENS who pay taxes property or PAYE will know that their life's work did not go to support salaries, unemployed, welfare, but on them. It is absolutely workable and removes 100% control of tax paying citizen funds from gov hands which at presently too much is being squandered. Think about it?

  • simpiwe.mboniswa - 2012-06-02 19:50

    Everyone must take responsibility, government, banks and most importantly us as individuals. This culture of living beyond our means must end especially among the young folks. The banking system in SA needs to be revamped. Why should you be charged to withdraw your money from your bank. If you leave a £10 for a month in your current account, in the UK you get interest on it not charges. One time I visited SA I opened an account and left £20, when I came back some two years later I was told that I have no money left, this came as a surprise as I was expecting to have at lest £25.

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