Lynette Nicholson, research manager at Old Mutual (Picture supplied).
Johannesburg - More South Africans are dependent on informal ways to save money such as using stokvels or savings clubs.
Research by Old Mutual Savings Investment Monitor (SIM) reveals that 42% of households are dependent on stokvels as a savings tool. Just over a quarter (26%) of households rely on burial schemes and unbanked cash savings (17%). And 13% of households depend on grocery schemes. These informal savings vehicles are generally popular among black households.
Some of the factors driving consumers to choose these informal savings vehicles are because they make funds easily accessible to people. “It is easier to get a loan, and it is often at a better interest rate,” explained Lynette Nicholson, research manager at Old Mutual.
There’s also a cultural element to these informal savings vehicles. “It’s a nice way for friends and family to come together,” Nicholson told Fin24. There is also pressure to save, people feel obligated to save because others are saving too, she explained.
Grocery schemes are particularly popular among single mothers, said Nicholson. It operates as a “stokvel for groceries”. Consumers pool money together and then, during the holiday season for example, they buy in bulk and distribute the groceries evenly among each other, she explained. “It’s a way to get things cheaper.”
Financial services providers can learn a lot from how these informal savings vehicles work to structure and develop new products, added Nicholson. “There’s a lot that can be learnt in terms of how they operate and their efficiency.”
Formal savings vehicles
Funeral policies are still the most prevalent of formal policies. Three out of four working metro households have a funeral policy. About 26% of households have education policies.
More people are also prioritising retirement, as they are living longer, said Nicholson. “They are using these years to plug money into retirement.” About 59% of people have retirement products.
More than half (51%) of people have a pension or provident fund and a quarter (25%) of people have retirement annuity. More people are seeing the need to have more than just a pension fund. “You need more to live,” she added.
Other formal products people rely on include banked cash savings (42%), formal products and policies (87%), investments (8%) and bonds (5%).
South Africans continue to use different sources of financial information and advice. The most common sources are friends and family, followed by financial advisors.
The internet is increasingly becoming a source of financial information.
However consumers are still wary when it comes to buying certain financial products such as life insurance and investment products online, explained Nicholson. “They still prefer to speak to a financial advisor and have contact.”