OPINION: Better ways to invest than in stokvels
Stokvels are found in many places: the workplace, among women in a church congregation, while men are also starting to use them as a way to save.
Although reasons for saving differ, the method remains the same. Members contribute a monthly or weekly fixed amount of money into a savings account, allowing participants to build towards lump-sum savings for any household or lifestyle needs.
According to research conducted by Nedbank, more than 11 million South Africans are members of stokvels, and a total of R44 billion is collectively saved in 820 000 stokvels across the country.
Stokvels make it easy to save as part of a collective, regardless of a person’s financial status as amounts are agreed upon within the group.
If appropriately managed, stokvels have the potential to help grow South Africa’s economy by using existing savings accounts to grow personal wealth.
According to market research company African Response, 41 percent of stokvels are banked while only 5 percent are focused on investment savings.
If banked correctly, stokvels could bring more South Africans into the formal financial services sector by giving them access to other savings, investment and protection offerings.
While stokvels have proved to work for many South Africans, there is room to evolve and serve members better by exposing them to investment and financial management specialists.
By using a bank account, it allows the members to track deposits and withdrawals, accurately reflect balances and interest earned, and the distribution of funds to members can be done directly into their bank accounts, which removes the risks associated with carrying large amounts of cash around.
But it is important to note that stokvels are not the only option if you want to save. Many financial institutions offer a variety of savings products.
The government encourages saving by offering tax benefits on certain investments; but this opportunity for growth might be overlooked by stokvels.
It’s therefore important that when deciding which savings or investment to use, you remember to consider tax-efficient solutions like tax-free savings accounts.
Don’t be afraid to ask for help. An accredited financial adviser can give you the right start by helping you unlock the long-term value you want to get from your savings.
Bongane Myanga is a financial adviser at PPS Financial Advisory.