No sights set on capital investment or big-ticket items

Savings are crucial during stressful periods for individuals and households alike. In the peak of Covid-19 times, when mobility was restricted, and only essential services and outlets were operational, many of us had to dip into our savings.  Interestingly, with the proposed new changes to the two-pot retirement system, it highlights the importance of savings. With an already poor savings culture, South Africans are trying to keep their heads above water.

Eighty20, a consumer strategy, research and analytics business, specialises in helping brands better understand customers. MAPS data provides insights from a nationally representative survey of 20 000+ South Africans. The FinScope Consumer Survey is uniquely aimed at increasing the understanding of the informal financial product/service market. Collaboratively, the two research sets give insight into South Africans saving behaviour.

❝ Consumers are feeling the pinch and saving is not prioritized due to the challenges of rising costs

“Consumers are feeling the pinch and saving is not prioritized due to the challenges of rising costs coupled with inflation and interest hikes. As one of the most unequal societies in the world, we can note that savings by LSM is very telling – with only the top-end of the scale having the ability to save.” says Andrew Fulton, Director at Eighty20

The philosophy behind ‘Savings Month – July’ is to encourage and cultivate a savings culture amongst South Africans. Data available on Eighty20’s Data Portal sheds light on the challenges that South Africans face. These realities reveal that there just isn’t enough to go around – not enough to sustain oneself and family members, and certainly not enough to put away after paying for essentials and necessary expenses.

The annual FinScope Consumer (2022) survey shows 52% of adults are putting away for rainy days in both formal and informal mechanisms, with 26% utilising informal mechanisms, and 11% keeping money at home.

However, what is more concerning is that most of these savings are for food consumption and funeral costs, rather than for capital investments or large item purchases. This shows the limited capacity of adults to adequately cover their consumption expenses, let alone saving for large items. A closer look at the data reveals that 15% of adults have retirement products, 12% have short-term savings, 11% have medium-term savings and only 4% have long-term savings/investments products.

While saving for food places individuals in a risky financial position, non-cash options exist and are being adopted more widely.

Consumers who are only saving for food and consumables will not be able to sufficiently manage any additional financial shocks. As a result, adult South Africans are turning to non-cash options with a notable increase in the use of loyalty points. In 2022, there was an eight percentage point increase to 46% of adults who use loyalty points programmes from 2021. Savings should not be restricted to monetary instruments to aid adults and households in making the most of their current circumstances.

Is savings a financial literacy concern? If so, how to change the behaviour? 

To simplify the concept of savings, it can be explained as what is left after paying for expenses. Generally, this can be expressed as income less expenses equal savings. However, there is another side to this that is implicit and affects behaviour. Some financial experts recommend saving first before paying expenses, while others typically follow the traditional approach of paying expenses first and saving afterward. This is the behaviour side of the equation.

Today, a financially savvy mindset is crucial. However, it is concerning that 83% of economically active adult South Africans (24.4 million) do not have retirement plans. This statistic is alarming, considering the high dependency rate on social security welfare by the government.

❝ This Savings Month, it is imperative for each of us to envision our future selves and take the appropriate steps today.

“This Savings Month, it is imperative for each of us to envision our future selves and take the appropriate steps today. Savings serve as a valuable mechanism to achieve positive goals. Firstly, teach children to develop a savings culture from the little they have, such as lunch money. Secondly, adults can save to prepare for financial shocks beyond covering funeral expenses. Lastly, plan and save adequately towards a post-retirement life when income will be limited. The quality of savings depends on what you are saving for and how saved up you are,” concludes Abel Motsomi, Senior Data and Analytics Specialist at FinMark Trust.

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