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Cape Town - National savings stocks accumulated from savings made by the private sector and households are currently at healthy levels of three times Gross Domestic Product (GDP), according to South African Reserve Bank (SARB) statistics.
However, household savings have been trending downwards for the past 35 years, with consumers tending to borrow rather than save.
The country also boasts one of the highest long-term insurance premium to GDP penetration ratios in the world, despite the fact that individual citizens are still significantly underinsured when it comes to life and disability cover.
In addition, South Africa’s pension assets are at 69% of GDP with the growth in pension assets one of the best in the world at 12.9% over 10 years to the end of 2014 (Towers Watson Global Pension Assets Study 2015).
Leon Campher, CEO of the Association for Savings and Investment South Africa (Asisa), said overall, when compared to the rest of the world, South Africa as a country does not have a savings problem. Unfortunately, he adds, the same is not true for households, especially those in lower income brackets, where savings are often cancelled out by debt.
He adds that far too little of this borrowing has been to acquire long-term assets like housing.
Campher said that explaining the need to save more to consumers was not the solution.
“Dialogue is not going to prompt consumers to save more. What is needed are concrete solutions aimed at achieving inclusion and preservation that will assist and encourage South Africans to make meaningful changes to their spending and savings habits.
“In partnership with government, we need to be innovative and creative and come up with initiatives that will make a real difference in the lives of ordinary South Africans,” adds Campher.
Home ownership as a tangible savings vehicle
Campher points out, for example, that residential housing in South Africa as a savings asset is considered low for a developing nation at 24% of the household balance sheet.
“When faced with a similar challenge, Britain earlier this year introduced a solution that is very similar to our Fundisa education unit trust fund,” says Campher.
In March this year, Britain expanded its Help to Buy scheme to help first time buyers struggling to save enough to put down a deposit for their first home. The Help to Buy: Individual Savings Account (ISA) is a tax free savings account available through banks and building societies designed to reward people that are working hard to save up for their first home. In addition first time buyers that choose to save through a Help to Buy: ISA will receive a government bonus of 25% of the amount saved to a maximum of £3 000 on £12 000 of savings. The bonus is paid when the first home is bought.
Campher points out that the Fundisa education unit trust fund - a public/private sector partnership between the Department of Higher Education and Training, the National Student Financial Aid Scheme (NSFAS) and Asisa established in 2007 – enhances the benefits of beneficiaries by 25% every year to a maximum of R600 per learner a year. In 2014, Fundisa distributed a bonus payment of R6.9m to some 25 000 beneficiaries from lower-income families.
“We have the blueprint. With some creative thinking we should be able to find a solution that encourages home ownership as a tangible savings vehicle.”
Solutions for workers with erratic incomes
Of the 4.9 million workers subject to sectoral minimum wage determination by the Minister of Labour under the Basic Conditions of Employment Act, 78% contribute to the national Unemployment Insurance Fund (UIF), yet only 37.7% contribute towards formal retirement savings. These vulnerable workers, who typically have low and often erratic incomes, include taxi operators, domestic workers and those employed in the agricultural and hospitality sectors.
Asisa, in partnership with Labour and Government, has pioneered the concept of contributory retirement coverage for these workers who do not have easy access to employee benefits alongside UIF.
“However, we need to move this project from the design table into implementation if we are going to integrate the country’s most vulnerable workers into the savings net.”
In addition, said Campher, South Africa also needs additional medium-term employment based saving mechanisms that can facilitate people’s need for access to funding in an emergency, but which also disincentivises easy access for the sake of consumption. “The absence of this solution is putting unnecessary pressure on long-term retirement savings vehicles to provide liquidity,” said Campher.
“We are dealing with an ingrained culture of conspicuous consumption and the reality is that consumers will dip into their savings if provided with easy access.”
Campher says the reality is that in South Africa there are no formal savings options that incentivise people earning R6 000 a month or less to save.
“Yes, there are some 8.25 million people who belong to some kind of stokvel. But these are largely geared towards saving for survival and in most cases this money is accessed regularly to buy consumables once a year or to fund funerals. Very few stokvels fulfil the role of a retirement savings vehicle.”
Consumer education at grassroots level
Campher points out that increasing South Africa’s savings pool requires more than providing consumers with access to appropriate products; it also demands financially literate consumers.
Last year the Asisa Foundation, in partnership with the Asisa Consumer Financial Education Standing Committee, therefore launched the first phase of the Hammanskraal Financial Literacy Project.
The Hammanskraal area was chosen, because this area represents a cross section of different levels of urbanisation, education and economic activity. The pilot project was successfully completed in November 2014, reaching more than 8 000 members of the community between the ages of 18 and 60 via various worksites, tertiary education institutions, NGOs, community forums and church groups.
“We wanted to be sure that this community actually derived value from this financial literacy project and therefore made use of independent monitoring and evaluation specialists to highlight factors which contributed to the success of the project and to recommend improvement based on feedback from participants.”
Campher says it was encouraging to receive feedback from participants that the sessions on budgeting and planning were the most useful modules together with the golden rules for savings.
In addition to interactive, face-to-face workshops key messages were also presented through industrial theatre, radio dramas and story lines for maximum impact.
Following the success of the pilot project, the Board of Trustees of the Asisa Foundation has approved funding for a further rollout of the project.
According to Campher, financial literacy projects will, however, only have a positive impact on a community, if members of that community earn an income and if these earners have access to products that are designed to accommodate erratic incomes.
