Priya Naicker (Supplied) ~ Supplied
The earnings of 41% of working South Africans living in metropolitan areas do not last until the end of the month.
While that is 10% down from 52% in 2017, this figure is still concerning, said Priya Naicker, advice manager for Old Mutual Personal Finance.
According to Naicker, the statistic means that in the past 12 months, 41% of the people surveyed had at least one month where they weren’t able to cover their expenses out of the income that they had earned.
"That is concerning, because it creates anxiety and financial stress for individuals, but over and above that, there is consequences to it. People will need to take out personal loans or borrow from friends and family and this carries over the anxiety into the future," said Naicker.
At the same time, she pointed out that there were indications of South Africans gaining a greater understanding of "where money comes from, where it should be allocated and how to avoid being over-indebted".
What remains concerning to her, however, is the high reliance on "funding consumption". This means that if your income is threatened in any way, you risk not being able to survive for the months ahead.
"It starts to emphasise that, irrespective of where you sit along the salary band, financial planning is exceptionally important. It is very important that you allocate your spend wisely and plan for the future," Naicker said.
Full transcript: Fin24's Moeshfieka Botha speaks to Priya Naicker, advice manager for Old Mutual Personal Finance.
MB: The OMSIM (Old Mutual Savings and Investment Monitor) has found that the budgets of 41% metropolitan working South Africans don’t stretch until month end. While that is 10% down from 52% in 2017, this figure is still concerning. What does this data tell us about how South Africans are having to stretch their rands?
PN: It’s quite an important statistic. It tells us that in the past 12 months, 41% of people have had at least one month where they weren’t able to cover their expenses out of the income that they have earned. That is concerning, because it creates anxiety and financial stress for individuals, but over and above that, there is a consequence to it. People will need to take out personal loans, borrow from friends and family, and this carries over the anxiety into the future.
What is important to note it that it is significantly down from last year. This drop also speaks to other outcomes from the research, which show that people are making a more concerted effort around their finances. There is an understanding of where money comes from, where it should be allocated and how to avoid being over-indebted.
MB: It seems that people are now making financial planning a priority. There seems to be a change in mindset. People first used to see what their expenses were, and then planned with what they had left. That mindset seems to be shifting?
PN: We are certainly seeing this out of the research this year. People are taking a longer term view around finances. In the past, South Africans would wait until all the expenses were covered and then look at saving and planning for the future. We now see that people are consciously taking a five- to ten-year view of their finances. Financial planning is being included in their lives and goals are becoming very important.
MB: Something else that has come out of the research, is that in households earning less than R6 000 per month the consumption rate is at 79%. This is the highest rate we have ever seen. This figure is especially worrying, considering that 40% of respondents have said that they are looking at other ways of supplementing their income. That 40% is 10% up from last year's research. These figures are concerning.
PN: That needs to be placed in context. We are a consumption-driven economy. We see that this trend is pervasive through all income brackets – it is just elevated in the lower income bracket, specifically the under R6 000/m bracket.
This is concerning. This high reliance on funding consumption means that if your income is threatened in any way, you risk not being able to survive for the months ahead. It starts to emphasise that, irrespective of where you sit along the salary band, financial planning is exceptionally important. It is very important that you allocate your spend wisely and plan for the future.
MB: Can we see where the spending patterns are moving? What are the money shifts that are happening?
PN: Over the last few years there has been a concerted effort on getting people to cut back on discretionary spend. With inflation and the economy as it has been in the last few years, people have started to cut down.
Yet whilst things like entertainment, travel and dinners out with friends are dropping, they are not dropping as much as they used to in the past. The reason for that, is that there is very little wiggle room left. So, the South African consumer has almost potentially reached their cap on how much discretionary income they can save.
As consumption increases, we are seeing this interplay where people are actually decreasing how much they save towards medical savings and debt repayment – and that is very concerning. You can’t consume more at the cost of your future well-being.
MB: Something which continues to show rising appeal in the OMSIM, is stokvels. The research shows that there is an increase of contributions to stokvels, especially among black households. The greatest increase is among the higher income groups.
The OMSIM shows that at 61%, this is the highest level of savings in stokvels we have ever seen. What can we attribute the popularity of stokvels to, and why are stokvels such important savings vehicles these days?
PN: Stokvels are a part of the thriving informal sector. In addition to stokvels we are also seeing the rise of investment clubs. This is just groups of people coming together and saving towards a common goal and saving together. One of the reasons that it has been so popular has been the social and community aspect of it.
This concept is not unique to financial services. People enjoy working together to achieve fitness and travel goals. We have seen that people are making a more concerted effort towards stokvels and other more informal savings. In the lower bracket under R40 000, people are increasing their contributions. We are also finding that more and more people in the upper income bands saying that they would like to contribute to an investment club.
In the past, you had to use this informal route if you wanted a simple, easy-to-understand option. In recent years financial institutions have come forward to support this need, so there are now offerings where you are able to have a group savings solution.
MB: It seems that there has been an evolution of the stokvel?
PN: You have these investment clubs that still have the simplicity, still have the social aspect, but also now come with the benefit of being able to enjoy growth, interest and time in the market – so that your money can work for you.
MB: If South Africans want to know more about stokvels, or just want to be educated about finance, where do they go to?
PN: We have seen that financial literacy and financial education is vital for inclusion. The Old Mutual Moneyversity site is a great place to start, just to understand the basic concepts around finance and the things that impact you as an individual.
It’s important to know how inflation and macro-economics at home and in other parts of the world relates to your circumstances – which includes the way your salary is structured and the way you spend your money. There are also information tools and calculators on the Old Mutual website.
We are finding that more and more people love to use the tech options as well, which present a whole new range of insights. An app like 22seven shows you where your money is going to each month, and triggers places where you can save. It allows you to see whether you are spending, in line with your priorities. Once you have delved into all of this, the expertise of a financial adviser is always available.
That speaks to pulling the macro-environment and your internal environment together, creating a financial plan, addressing your goals and achieving financial security for the future.
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