South Africans' financial blind spots a year on from lockdown
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A quick poll of a 20-to-30-something sample group reveals common financial ‘blind spots’ many South Africans share. Debt and credit card concerns feature prominently, alongside paying off a bond, an inability to save and no emergency fund. At the end of 2021, Trading Economics projects South Africa’s Household Saving Ratio will stand at 0.6% - one of the lowest in the world.
Much is needed to turn this around, including a focus on financial inclusion by ‘levelling up’ financial literacy.
The first-ever financial family education TV game show airs on 3 April on eTV and uses the medium of entertainment to improve financial literacy levels. It aims to break down complex concepts in a fun way and tackle the ‘blind spots’ many South Africans share. Its ultimate goal is to impart financial confidence because that’s where positive money management begins.
Here Sydney Mbhele, Chief Executive, Brand at Sanlam, outlines some of the financial blind spots that many South Africans share:
- Do you know the interest rate? Sanlam’s spot research suggests many people do not know the interest on their savings products or how this relates to the current REPO rate (the rate at which the Reserve Bank lends money to commercial banks). The current rate of 3.5% is great for those paying off bonds, but it also brings down savings and investments interest rates. It’s important to be cognisant of this and consider compensating by upping your savings and investment contributions.
- What do you prioritise? According to a recent Sanlam survey, many (45%) South Africans report spending more money on food since the pandemic’s start, with several reporting an increase in takeaways. Conversely, 21% report cutting back on saving for retirement. While the need for small spoils is totally understandable, it’s also wise to be wary. It’s difficult to prioritise your future self over short-term wants if you don’t set specific savings goals. That’s where seeking expert guidance from an intermediary may be beneficial. Once you have a road map in place – and someone to be accountable to – saving can be a lot easier.
- Is your head in the sand? The pandemic made many aware of the importance of an emergency fund, plus grudge purchases like life cover. But does that translate into action? Catalyst’s research suggests it might not. Just 49% of people polled had sufficient savings to cover the bills for three months – 44% could do 6 months. Many cancelled or relooked financial products over the course of pandemic. It’s easy to pop one’s head back in the sand and assume this is a once-in-a-lifetime event. But the bigger lesson should be that curveballs do occur, and emergency funds are the best way to bolster resilience and weather the storm, without depleting savings.
- Have you made provision for medical needs? Having sufficient savings to retire comfortably is most people’s goal line… but a big blind spot is failing to make adequate provision for one’s health. Having adequate medical aid and gap, severe illness and disability cover can make a massive difference. It’s also wise to have health savings so you can cover any shortfalls.
- Are you investing? South African households’ real net wealth went up by R1 trillion between the second quarter and end of 2020. This is largely being attributed to strong growth in the value of financial assets like shares and bonds.
- Interestingly, the same research found that the country’s wealthiest 2% of households weren’t necessarily the top 2% income-earning households. Rather, they comprised many middle-income-earners who were smartly invested, with savings and good credit records. The take-out? Having the financial confidence to make your money work harder for you is important.
- You can do a lot with a little: Another common blind spot is the belief that you need to be wealthy to be able to save or invest. You don’t. Adopting a mind-set of abundance is key. It’s critical to have the confidence to know that even saving a small amount now could have a big pay off later.
- The sooner you start, the better, irrespective of the amount. Top tip: prioritising retirement saving before you’re 25 means you’ll capitalise on compound interest and your contributions can be much smaller than if you started saving a lot more later, to retire with the same amount.
- How are you dealing with debt? A survey from PayCurve (August 2020) found 80% of South Africans were seeking unsecured loans in order to cover their monthly expenses. Another survey from DebtBusters (August 2020) reports that the debt holiday that banks offered in March 2020 has added R20.7 billion to the debt of about 1.6 million South Africans.
- The situation is dire, but an elephant can be eaten, one small bite at a time. A common blind spot is feeling overwhelmed and failing to come up with a smart, holistic strategy. It’s often a good idea to pay off small debts completely so you can focus on the larger ones. But it depends on your specific circumstances. Consider chatting to an adviser to come up with an achievable plan.
- Do you know your family’s money personalities? These different dynamics will shine through on Moola-Money, as families compete to answer finance-related questions to win R50 000 each episode. Recognising each family members’ attitude to money (saver, spender, bargain bagger, etc.) can make it easier to have courageous conversations and come up with shared goals. It’s also one of the best ways to understand your own financial blind spots.
Much of our attitude to money stems from how we’re brought up. So, understanding and reflecting on this could help you work through your own money behaviours – good and bad.