By Justin Asher
Across the world, people are facing a cost of living crisis and as consumers fork out more for fuel, food and rent, saving has stopped being a priority for many. But micro-savings and investments provide an opportunity for ordinary people to still put something away for the future, in a way that is still affordable and sustainable.
According to a Stanlib report on savings in South Africa, household savings can be tracked in three main phases. Between 1960 and 1981, there was a high household savings rate, which averaged at around 10 percent and peaked at 23%. From 1981 to 2001, this dropped drastically to about 3.9% of household disposable income. Post 2000, these plummeted even further- with households recording high levels of consumption, but negative savings rates.
A strange thing happened during the Covid-19 pandemic though- South Africa’s savings rates increased despite interest rates dropping. We saw similar trends across the world, and the fact that cryptocurrencies Bitcoin and Ethereum both reached their highest prices ever in 2021 points to the fact that people have been turning to non-traditional options in an effort to save and invest.
But no one could have predicted that the pandemic which wrought havoc on the economy would be closely followed by a war in Ukraine, which would force global fuel prices up. This on top of increasing interest rates and electricity price hikes has left South Africans stretched. Saving feels harder, and like a chore, like when your parents would nag you to put coins into a piggy bank when you were a kid.
But maybe those coins, rather than big amounts of money set aside every month, are the future of saving? There are a number of micro-savings and investment tools available to South Africans right now. The most common being rounding up your spend whenever you make a purchase. So if for instance you spend R248 on your grocery shop, your bank automatically rounds up to R250 and drops the remaining R2 into your piggy bank. There are also other kinds of passive investment that can also go towards things like fractional shares or other types of investments.
There is so much noise around the biggest cryptocurrency right now that it is impossible to determine what is hype and what has real value. In our research we found that a large number of people who know about Bitcoin are curious to get into it, but skeptical or unsure about using exchanges and having to start off with big amounts. So we’ve built our app on the idea that even investing those piggy bank coins into Bitcoin can build long-term value for investors. There’s a saying that goes - time in the market is better than timing the market!
The future of savings:
Given the way the world has changed and the economic prospects we face right now, we may never see household savings rates like those measured between 1960 and 1981. But that doesn’t mean people don’t want to save- we just need to solve for how they save.
Consumers aren’t as interested in traditional banking and finance models anymore. We can see this in the expeditious growth of fintechs in Africa and South Africa. Digital payments were naturally the first frontier for African fintechs, but as this space starts to fill up, there is opportunity for startups and fintechs to explore savings, and longer term investments. There is room for fintechs to dominate the market in the coming years in the same way Uber, Airbnb and others did after they disrupted their respective industries.
The more control we give people over their finances, the more they will want to be in control. And there is no better way for them to be in control of their futures, than through saving.
Justin Asher is head of strategy and marketing at upnup- a new micro-savings and investment platform.