There is much concern about the poor savings culture here in South Africa. Given the serious nature of this problem, Investec and GIBS (the Gordon Institute of Business Science) created a savings isndex to monitor the situation. This index has been designed to generate a benchmark comparing South Africa’s savings record against the rest of the world.
The first figures were published in 2016, and as at the end of 2017, it could be seen that the savings rate was at its lowest here in SA for 27 years.
Sound economic health drives confidence in saving
The way that the population views the importance of saving is fundamental to South Africa’s economic health. That’s why the index is such a valuable tool.
To bring the country into line with the global picture, it is estimated that South Africa needs to achieve a national investment rate of 30% or more. To achieve this goal, the index target must reach a score of 100. The latest score shows 60.5 points. In other words, there is still a long way to go.
The issue lies in the cultural inclinations of South Africans as far as saving money is concerned. Much is being done to improve financial literacy, and this goes some way towards creating the right footing. The next step for the population is to understand about setting the right goals for saving and then adhering to these plans.
The poor showing to date in terms of the attitude towards personal savings is not hard to understand. You only have to look at South Africa’s poor economic performance in recent years. In the past couple of years, the wrangling in the political world has seen the economy drop to near recessionary levels, so it’s hardly surprising that people have not been saving.
African economy forecast receives a boost from Theresa May
But the good news is that the South African economy forecast received a boost from Theresa May’s recent visit. Mrs May has indicated that Great Britain aim to be the G7s biggest investor in Africa. If this does happen it should boost confidence, and an improving economy will give individual South Africans more faith in putting savings aside.
If confidence does return sufficiently to tempt people into putting their money into some sort of savings account, it is essential that potential savers get a clear focus on how to get the best interest rates on the money they are setting aside. This is key, especially given the fact that according to the SA Reserve Bank, over 40% of savers have their money lodged in low return savings accounts.
Be choosy with your savings vehicle
By being more aware of what options are open to you, your savings could be earning as much as 10% per annum or more regarding interest. This is significant; especially if you are saving towards your retirement.
It does mean that you have to be prepared to take a little more risk with your money. Unfortunately, the safer the investment, the less interest it tends to earn. This is also true concerning access. The easier and quicker the access you have – again the less interest it will earn.
Getting a handle on risk
But when we talk about risk, it needs to be put into perspective. When a lot of South Africans hear the word “risk,” they immediately envisage their savings disappearing overnight because the stock market has taken a dive.
If you get the right advice, however, your investments can be spread over a wide variety of economic sectors. You don’t have to do anything yourself; your financial advisor and the savings vehicle you are in will make these decisions for you.
Okay, the market might dive. But as long as you don’t need to get access to your savings when this happens, it should bounce right back up again over the next couple of years or so. The advantage is that over the longer-term, your savings will grow significantly – especially if they attract compound interest.
On your marks – get set – Save!
The message is clear. Get your savings goals clearly defined, find a good financial advisor and start saving for that rainy day. The sooner you start, the more money you will end up with.