July is National Savings Month, a country-wide initiative to educate South Africans, who are known for their poor savings habits. According to the World Economic Forum’s 2012-2013 Global Competiveness Report, South Africa’s level of savings as a percentage of GDP puts it 87th among 144 countries, a move down from the previous year’s ranking of 72nd.
Sugendhree Reddy, Head of Personal Banking at Standard Bank says: “South Africa is well behind other countries when it comes to our savings rate. Looking at some of the BRICS countries for example, China ranks fifth worldwide and India 22nd in terms of their savings rate.”
According to the survey, South Africa’s gross national saving level was just 16.5 percent of gross domestic product in 2012/13, compared to China’s 51 percent, India’s 31.6 percent and Russia’s 28.6 percent. In Africa, Nigeria’s national saving level is 28.4 percent of GDP and Tanzania’s 23 percent.
“Savings is the primary vehicle for resource mobilisation in an economy. Nations that save enjoy a certain degree of self-reliance, good economic growth and citizen wellbeing,” says Ms Reddy.
The South African government is involved in a number of initiatives to kick-start an increase in consumer savings. South African banks are supporting this drive.
“All players in South Africa’s financial sector have a role to play in driving a better savings culture in South Africa, and have been trying to encourage this in various ways,” Ms Reddy says. “Improving financial literacy from a young age is one aspect. The Banking Association of South Africa is involved in an annual campaign teaching children to save and entrenching the value in putting money away for future use.”
Direct government initiatives aimed at engendering a savings culture include the introduction of products like the Fundisa fund, and proposed tax incentives for non-retirement savings.
“South African banks are also introducing more innovative products that encourage savings,” Ms Reddy says, “Standard Bank encourages savings by rewarding customers for good saving behaviour. For example, customers who hold a saving or investment account with us are rewarded through our new UCOUNT loyalty programme. To make savings easy, most of our products allow for predetermined amounts to be automatically transferred to a saving account on a regular basis.”
She notes that economic factors also have to be considered. “We know that interest rates are at a historic low in South Africa, but that shouldn’t deter savings. Products are available that still offer good returns. An innovative product introduced by Standard Bank last year, SharePlus, gives consumers the option of investing in the stock market with market-linked returns. It minimises risk by guaranteeing the capital invested.”
Ms Reddy says that it is up to South African consumers to proactively take the necessary steps to start saving, and reject the culture of impulsive buying and ‘buy now, pay later’ that has become a real concern. “The habit of saving needs to become more widespread and start at a younger age,” she says. “For example, among our customer base for savings and investment products, less than 30 percent of accounts are held by people under 35 years of age.”
She notes that in many instances people believe that they are not in a position to save due to the debt trap that they find themselves in. “Debt isn’t always a bad thing as long as the debt servicing costs are within your affordability,” says Ms Reddy. She advises consumers who feel overly indebted to take steps toward reducing their debt. “You will find that the cost of servicing your debt is typically higher than the gains from saving,” says Ms. Reddy. “It is therefore wise to first focus on paying off your highest interest debt.”
“Consumers may complain that times are too difficult for saving to be considered, and rising cost pressures are indeed being felt. However, savings mean consumers can be better prepared to face these tough times when they inevitably occur. South Africans need to come to the table in becoming more disciplined about saving for their future well-being.”