Saving our way to prosperity - Investec
“Every ‘rich’ nation was ‘poor’ at some stage,” says Adrian Saville, professor in economics at the Gordon Institute of Business Science, which compiles the Investec GIBS Savings Index for South Africa.
“Likewise, none of the ‘economic miracles’, also known as ‘saving stars’, such as South Korea, Chile and Singapore, were born with saving spoons in their mouths.”
Their household savings rates are above 15 to 20percent even in the face of low income rates.
René Grobler, head of Investec Cash Investments, says the Savings Index measures the savings levels and the critical factors influencing savings in the country.
“By the fourth quarter of 2018, the index reached its lowest level of 60 points, while a score of 100 would be regarded as a ‘pass mark’ for the country.”
The research from the index identifies the structural ingredients that build country prosperity. These are common across the countries that are identified as “economic miracles”, such as Chile, Costa Rica, Estonia, Poland, Taiwan and South Korea.
Combined, these ingredients produce vast gains in per capita incomes, productivity and industrial complexity, and sustained improvements in developmental indicators, such as life expectancy, education levels, social mobility and inequality. The six ingredients include:
* A high rate of savings;
- Access to improving healthcare;
- Access to improving education;
- A favourable demographic structure;
- A stable policy environment with effective institutions; and
- Economic openness.
Of the six ingredients, the most powerful explanatory factor across countries and through time is the first, the savings-investment rate.
“Based on this research, the first step in understanding and explaining a country’s economic performance and progress starts with an assessment of the investment rate which in turn is generally explained by the level of savings available to fund investment,” Saville adds.
Grobler says based on research done for the index, saving is a learnt behaviour.
“Assuming a basic level of income, saving could be one of the most beneficial habits you adopt for your future well-being, and one your future self will definitely thank you for. The only way that you can get into a habit is to start that habit.”
She proposes three key tips to achieve this: “Understanding that savings is a learnt behaviour means it requires disciplined execution; technology can be a useful tool to achieve a level of automatic saving. A good example is setting up scheduling payments from a primary bank account to a savings account monthly. This is one of the easiest ways to “save automatically” and ensures that you prioritise saving before spending on luxury items.
“Secondly, schedule a call with your financial adviser annually to check on your savings levels, review your financial circumstances, risk appetite and investment options to ensure you are achieving the best possible returns.
“Thirdly, maximise your tax breaks, such as tax-free savings.”
Supplied by Investec Specialist Bank