Old Mutual survey shows South Africans starting to manage debt better

5 Jul 2017

Despite the increasing financial pressures experienced by South Africa’s working metro population, there has been a slight improvement in South Africans’ confidence in their own ability to make responsible financial decisions.


“There is a very likely link between this small shift in mindset and the encouraging decrease in income to debt ratio recently reported by the South African Reserve Bank, as well as some of the debt and loan related findings in our research,” says Lynette Nicholson, Research Manager at Old Mutual.

The research findings of the 2017 Old Mutual Savings and Investment Monitor, released today, indicate that there has been a decline in the incidence of people from working metropolitan households taking out personal loans. Personal loans from financial institutions have dropped from 21% (2016) to 14% (2017). Micro-lending loan arrangements are also slightly down from 8% (2016) to 6% (2017), while borrowing or taking loans from friends and family is down from 15% (2016) to 13% (2017).

Nicholson believes this shift in behaviour reflects South Africans’ growing awareness of the serious implications and vicious financial consequences of bad debt, and a better understanding of the importance of reducing debt as fast as possible. However, due to the strained economic conditions, South Africans are finding it increasingly difficult to save for their futures, she adds.

An area of particular concern highlighted by the Monitor is that only 44% of South Africa’s working metropolitan parents are saving for their children’s education (down from 46% last year), which means a staggering 56% are not saving for their children’s education.

Among lower income earners (where the household income is less than R6 000 per month) only 29% say they are saving for their children’s education.

When it comes to preparing for retirement, Nicholson points out that South African working metropolitan households still suffer from a lack of long-term planning. An alarming 40% of respondents said they have no form of formal retirement savings at all, including pension/provident funds or retirement annuities.

“The harsh reality of this scenario is that if South Africans think they are feeling the financial squeeze now, they are in for a major future shock unless they remedy the situation,” Nicholson warns.

Although the majority of South Africans surveyed continue to lack confidence in the economy (with only 34% feeling confident), the latest research findings show that a third (33%) still believe that the government will take care of them when they are no longer able to take care of themselves – a statistic that has remained almost unchanged.

A further 37% believe their children will look after them when they are old. This sentiment rises to 53% among lower income households (those earning less than R6 000 a month), but a surprising 22% of those in the upper income households (those earning more than R40 000 a month) share this belief.

Research into the Sandwich Generation - those that are looking after their own financial needs as well as those of their ageing parents and their own children – shows that the incidence remains at 28% of the working metro population. “But there are signs that this phenomenon will grow,” says Nicholson, “especially as nearly half (49%) of 18 – 34 year-olds still live at home with their parents, which is up from last year’s 42%.”

An area of continued interest is the informal saving sector, and stokvels in particular. Reportedly worth R49 billion, stokvels remain one of the most popular savings vehicles, together with funeral policies, with just over 70% of the population using them.

When asked why they save through stokvels, 44% of respondents stated they use them to save for a rainy day, 43% to pay off debt, 31% to purchase groceries at month end, 31% to purchase furniture and appliances, and 25% to save for education.

“South Africans are very resourceful and resilient, and to cope with rising monthly expenses, consumers from all income groups are beginning to purchase their groceries in bulk, while shopping for cheaper brands and looking for discounts,” says Nicholson.

She adds that economic pressures have led to about 39% of respondents considering opening their own businesses. “This percentage is particularly high in the 35-49 age groups (42%). However, our research shows that the number of fully self-employed entrepreneurs has dropped from 12% to 8%,” she says.

“The one resounding message that emerges from our research each year is that we are not saving enough: as individuals and as a nation. The reality is that we all need to accept that we must reduce our spending today to make provision for tomorrow. Yes, there are small signs of improvement, but as individuals we need to urgently take more drastic steps if we are to have any hope of building a financially secure future,” Nicholson concludes.