Understanding why South Africans aren’t saving
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OVER THE years, banks and financial experts have called for South Africans to save for the proverbial rainy day. In March last year, that rainy day arrived, as Covid-19 delivered a torrent of financial challenges that left anyone without accessible savings and investments struggling.
A recent study conducted by a leading data analytics firm, Kantar, produced some interesting insights into the real reasons few South Africans are saving. And it appears that many South Africans still haven’t taken to heart the hard lessons Covid-19 delivered about the importance of saving.
Arguably, one of the most interesting findings of the research was that, contrary to widely held perceptions, most South Africans want to save, and they understand the importance of doing so.
However, the large majority find it difficult to save because they find most formal savings offerings overly complex and intimidating, and they don’t understand how the typical savings account can help them to grow their money.
In addition, the research found that the younger generation is increasingly turning to new ways of growing their money, such as share and forex trading and cryptocurrency, because, in general, they have a greater appetite for risk. This is an indication that younger investors look for more aggressive growth, because they want to build wealth - fast - which isn’t necessarily a bad thing. They have time on their side to allow investments to go through various stages of growth, and, in bad seasons, they have time to wait out the storm.
However, it is imperative for young investors to investigate all investment platforms and do their research into any asset class or investment type, in order to prevent losing the very wealth they were trying to build.
The research findings further highlighted that many people are reticent to put their money into a formal savings product, because they see banks as less of a partner in building financial security, and more of a gatekeeper, forcing them to jump through hoops to get their money back when they need it.
This misconception isn’t helped by the fact that many people believe that formal savings products aren’t meant for them, but are for wealthy individuals who have a high level of financial literacy. This highlights another significant hindrance to the development of a much-needed savings culture in South Africa, which is that few individuals recognise, or understand, that the various savings products available through formal channels are designed to help savers meet specific goals.
For example, someone who needs to save money that they may need quickly in an emergency would choose a different savings account to the person who has five years in which to save towards a long-term goal. And the savings goals inform the design of the savings solution, which means that some prioritise access over interest levels, whereas others, such as fixed deposits, focus more on delivering maximum growth over time.
The failure by many people to understand these differences has led to a widespread misconception that when they put their money into a savings account, they effectively lose control over it. This is obviously not the case. In fact, the opposite is true, and most formal savings solutions offer savers total control in the form of a choice of what objective they want to prioritise in their savings plan.
And another significant challenge to building a savings culture is the lingering perception that formal savings offerings are expensive. Despite most bank savings accounts charging low, or no, fees, many potential savers believe that high account charges will eat away at what little savings growth they achieve. Many people also see high minimum deposit requirements as a significant barrier to entry.
So, although banks have come a long way in terms of simplifying their savings offerings, it’s clear there is still much work to be done. Obviously, there’s no one-size-fits-all savings offering that will provide a solution to all these challenges. But understanding what is holding South Africans back from saving the way they should, and then acknowledging that a more consumer-oriented approach is needed for the design and marketing of savings products, are two important steps in the right direction.
Clearly, what is needed is a combination of innovative, simple and people-centric savings product, full transparency around costs and rates of return, a greater investment in consumer education, and a commitment by banks to put a more human face to savings. And from a consumer perspective, acknowledgement of the importance and value of saving, even if it is only a small amount to start with, will go a long way towards building the long-overdue savings culture.
Sisandile Cikido is the head of retail investments at Nedbank.
*The views expressed here are not necessarily those of IOL or of title sites.
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