National Savings Month began this week with the acknowledgement that as South Africans we are saving, but not enough and not necessarily in the right places.
Our savings efforts are being hampered by a lack of financial literacy, consumerism and unemployment. Despite these challenges, millions of us do save through our pension funds and in informal savings each month and this needs to be celebrated and encouraged, the South African Savings Institute (Sasi), says.
Sasi is a non-profit organisation celebrating its 15th anniversary this year. Its theme for Savings Month this year is “Celebrating Savers and Savings”.
South Africa’s official savings rate at the end of March 2016 was 15 percent, our household savings rate was 1.1 percent and our debt as a percentage of disposable income was 76.6 percent. These numbers show little reason to celebrate. However, they do represent a slight improvement. Previous figures show that debt to disposable income was 80 percent and savings were below one percent.
In addition to the small gains, informal savings have continued to increase, assets under management in the collective investments schemes industry total nearly R2 trillion, and the pension fund industry holds over R4 trillion in assets.
“So while we bemoan our low savings rate, it would appear that we are saving,” Prem Govender, Sasi’s chairperson, said on Thursday at the launch of National Savings Month in Sandton.
Nevertheless, there are many who do not have enough savings for emergency events or retirement and Sasi’s 15th birthday is a good time to reflect on what has been done to encourage and promote savings and what still needs to be achieved.
The latest figures from the Reserve Bank bulletin show a slight improvement in savings, but you have to look very hard to find that improvement, Ismail Momoniat, National Treasury deputy director-general for tax and financial sector policy, says.
Some of the reasons for a low savings rate are easily identifiable. Unemployment is over 25 percent, and if you are unemployed you cannot save. In addition, many families spend large amounts on private-sector education and health care, leaving very little to save.
The less obvious reasons for low savings relate to poor financial literacy and the rise of conspicuous consumerism, which encourages instant gratification no matter what the cost.
SASI runs a university financial literacy programme, where the extent of poor financial knowledge is obvious. It is of serious concern when graduating students who are expected to handle their finances on entering the job market don’t know or understand what a budget is, Govender says.
For many people, saving is a foreign language. We need to get out there and teach the language, Gerald Mwandiambira, the acting chief executive of Sasi, says.
Knowledge is one thing, action is another, and there are subtle and not so subtle ways to encourage savings. Momoniat says it is not just about education; even the cleverest people get tempted by greed. We need to look at behavioural theory and how we present options to people, he says.
Govender believes the key is to teach money skills from an early age. Sasi and the Banking Association of South Africa run an educational programme in schools that has reached over 1.2 million learners in 3 000 schools.
Improving savings can also be achieved through the use of auto-enrolment, defaults and incentives.
Do they work?
Auto-enrolment – belonging to a pension fund for example – is common and has many obvious advantages. Auto-enrolment in a pension fund is used is some countries and is an accepted condition of employment at many employers in South Africa.
Far more controversial are compulsory preservation of retirement savings and annuitisation (using savings to buy a pension), as shown in the resistance by unions since 2013 to the introduction of legislation to bring about compulsory annuitisation, which was postponed again early this year until 2018.
“I would still say we must fight the fight for preservation. ‘If you want a tax incentive, you must preserve and annuitise’,” Momoniat says, and stresses the need to do more to achieve consensus.
Defaults that provide suitable investment strategies, preservation on resignation and annuities at retirement can also be useful, as this means the first choice is made by a system that has to be overruled by the individual. People tend to live with the choices the system makes for them, Momoniat says.
Default preservation means that, if you leave your job, your retirement savings are automatically preserved unless you make another choice. Insisting that advice be given when a default is overruled could further improve the chances of a good financial outcome, he says.
The success of the tax-free savings accounts introduced last year to encourage people to save, proves beyond doubt that, with the right motivation, South Africans can and do save, Govender says.