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Only six million people in South Africa belong to a retirement fund. (<a href=\http://www.shutterstock.com\>Shutterstock</a>)
Cape Town - Putting something aside for their old age seems to be the last thing on young South Africans' minds, who like to opt for an 'I’m still young – I’ll save later' philosophy.
But poor savings habits coupled with the high rate of unemployment could have an enormously negative effect on the financial future of young South Africans, cautions Lynette Nicholson, head of research at Old Mutual.
The 2013 Old Mutual Savings and Investment Monitor, which surveyed metropolitan working South Africans, showed that 45% of youth respondents - young people between the ages of 18 and 30 - have neither a pension or provident fund nor a retirement annuity in place, while only 13% have an RA.
Instead, the vast majority of respondents prefer to rely on more informal savings vehicles, with 63% saving this way - an increase from 61% the survey recorded last year.
When asked what they were saving for, the responses were strongly skewed towards short-term goals. The allure of their own wheels prompted 34% to save towards a car purchase a car, while 31% were saving for emergencies or a rainy day. Only 26% of the youth respondents indicated that they were saving for retirement.
“Even when they are given the opportunity to access a retirement fund, many pass on the opportunity as they feel they would rather start at a later stage when they can more easily afford payments,” says Nicholson.
“Given this backdrop, another alarming finding of the survey was the fact that 45% of the youth sample are planning to support their parents.”
Tips for long-term savings
So what can be done to improve this situation? Nicholson has some tips.
* Start early
Contributions made to a long-term savings vehicle or retirement fund early in one's working life is crucial. “While retirement may seem a long way away to someone in their twenties, it is vital that people begin saving as early as possible," says Nicholson.
“Basically, thanks to the power of compound interest, the longer your money is invested, the more time it has to grow. Waiting even a few years before starting to save for retirement can have a massive impact on your final retirement savings."
* Take a long, hard look at your current financial position
Consider all your expenses and then classify those according to wants (optional, nice-to-have things) and needs (essential items).
The nice-to-haves all, in some way or another, take potential funds away from your long-term savings – so go through the list and select five or six optional expenses that you can cut out. Then put this money into a long-term savings vehicle instead, advises Nicholson.
* Set yourself specific goals
Nicholson says a long-term savings plan must be based on realistic but specific long-term savings goals. “Without these goals, you will struggle to save, as you will be inclined to simply spend all the available income at your disposal.
“Do not think of long-term savings as an optional expense. Whatever you earn, your long-term savings goals should be a priority. It will be much harder to save later on in life when you really need the money.”
- Fin24
Do you consider yourself (or anyone else) a savings hero? Tell us about it and you could get published. You could also:
* Write a guest post
* Ask the experts
But poor savings habits coupled with the high rate of unemployment could have an enormously negative effect on the financial future of young South Africans, cautions Lynette Nicholson, head of research at Old Mutual.
The 2013 Old Mutual Savings and Investment Monitor, which surveyed metropolitan working South Africans, showed that 45% of youth respondents - young people between the ages of 18 and 30 - have neither a pension or provident fund nor a retirement annuity in place, while only 13% have an RA.
Instead, the vast majority of respondents prefer to rely on more informal savings vehicles, with 63% saving this way - an increase from 61% the survey recorded last year.
When asked what they were saving for, the responses were strongly skewed towards short-term goals. The allure of their own wheels prompted 34% to save towards a car purchase a car, while 31% were saving for emergencies or a rainy day. Only 26% of the youth respondents indicated that they were saving for retirement.
“Even when they are given the opportunity to access a retirement fund, many pass on the opportunity as they feel they would rather start at a later stage when they can more easily afford payments,” says Nicholson.
“Given this backdrop, another alarming finding of the survey was the fact that 45% of the youth sample are planning to support their parents.”
Tips for long-term savings
So what can be done to improve this situation? Nicholson has some tips.
* Start early
Contributions made to a long-term savings vehicle or retirement fund early in one's working life is crucial. “While retirement may seem a long way away to someone in their twenties, it is vital that people begin saving as early as possible," says Nicholson.
“Basically, thanks to the power of compound interest, the longer your money is invested, the more time it has to grow. Waiting even a few years before starting to save for retirement can have a massive impact on your final retirement savings."
* Take a long, hard look at your current financial position
Consider all your expenses and then classify those according to wants (optional, nice-to-have things) and needs (essential items).
The nice-to-haves all, in some way or another, take potential funds away from your long-term savings – so go through the list and select five or six optional expenses that you can cut out. Then put this money into a long-term savings vehicle instead, advises Nicholson.
* Set yourself specific goals
Nicholson says a long-term savings plan must be based on realistic but specific long-term savings goals. “Without these goals, you will struggle to save, as you will be inclined to simply spend all the available income at your disposal.
“Do not think of long-term savings as an optional expense. Whatever you earn, your long-term savings goals should be a priority. It will be much harder to save later on in life when you really need the money.”
- Fin24
Do you consider yourself (or anyone else) a savings hero? Tell us about it and you could get published. You could also:
* Write a guest post
* Ask the experts
