Johannesburg – South Africans prefer informal savings vehicles like stokvels over bank accounts, according to the Old Mutual Saving and Investment Monitor for 2017.
The recently-released survey looks at the saving and investment behaviour and attitudes of working people in metros, and conducted face-to-face interviews with 1 000 South Africans.
The survey revealed that South Africans allocate 15% of their income towards saving. Over 70% of respondents rely on informal savings vehicles, compared to 35% which save using bank accounts.
Of the respondents, 75% have funeral policies - the highest or most prolific savings vehicle used, said Lynette Nicholson, research manager at Old Mutual.
Over the past year, saving in retirement annuities picked up to 30%. More than half (53%) of respondents have pension and provident funds, and 38% of respondents have life assurance or death and disability cover. Education policies took a bit of a dip from 46% to 44% in the past year, said Nicholson.
Borrowing from stokvels
The fact that people are relying on informal savings vehicles is not a bad thing, especially over the short term. But it would be better to see long-term savings vehicles used in the future, she said.
The survey indicated that 53% of respondents were members of stokvels, down from 59% in 2016. A slight drop in contributions to stokvels was also observed in the survey. On the higher end of the income scale, contributions are increasing.
However, on the lower end of the market contributions have notably reduced, explained Nicholson. But there still is a trend of people belonging to more than one stokvel.
“We picked up that approximately one in two stokvel members actually borrow from their stokvels and use it as a loan facility.” About 50% of respondents said they borrowed from their stokvel at least once in the past year. On average, the borrowed amount is R4 660. Most respondents (32%) said borrowings went towards paying for school fees, while 24% said they used borrowings to pay for groceries.
The survey showed that respondents preferred informal savings vehicles because they are an easy way to save. Another reason is that it forces them to save and there is a social aspect to saving this way, explained Nicholson.
About 44% of respondents said they are using stokvels to save for a rainy day, while 43% were saving in stokvels to pay off debt.
A quarter (25%) of respondents said they are using the savings for education, while 31% of savings goes toward purchasing monthly groceries and furniture appliances. Only 18% of respondents said they save in stokvels for clothing, and 16% were using the stokvel to save for something specific.
WATCH: Why South Africans prefer informal savings vehicles
John Manyike, head of financial education at Old Mutual, told Fin24 it is important to explain the difference in returns gained using informal savings vehicles and formal vehicles. The choice of a savings instrument is critical, he said.
“A lot of people save through stokvels and the reason they save is mainly short term. It is important to hammer in the minds of South Africans that they must have long-term savings,” he said.
Manyike said it is important for South Africans to get in touch with a financial adviser to help with their financial planning. “Some people invest in instruments that do not yield high returns for them.”
He added that the financial services sector in turn should examine the whole informal sector to see why people prefer informal savings vehicles, and then create innovative products that speak to the market.
With money in informal savings vehicles, the country can’t leverage the savings pool to advance infrastructure, which is critical for the country to create jobs, he said.
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