Earning a good salary is no longer a sure road to financial freedom. It’s about how much of this salary you can save – and how well you can make it grow for you.
South Africans are often classified as poor savers, but Ntombi Tisani, Head of Marketing at Old Mutual Personal Finance, points out that approximately R50 billion is invested annually into stokvels (umbutho, society or mokgatlo) around the country, according to the National Stokvel Association of South Africa. The latest Old Mutual Savings & Investment Monitor (OMSIM) confirms that 74% of black middle class respondents have some form of informal savings like a stokvel/savings club or unbanked cash.
"The research from the 2017 Old Mutual Savings & Investment Monitor reveals that stokvels continue to grow," says Tisani, "with 42% of black metropolitan South Africans who earn R40k+ income per month belonging to more than one stokvel. Of those earning R20k+ income per month 44% belong to a stokvel, and report that if they can’t meet expenses at the end of the month, they will borrow from their stokvel."
Although saving of any sort is a step in the right direction, Tisani says there are some disadvantages to using a stokvel:
- Access to your cash can be an issue, because members need to wait their turn for stokvel payouts.
- Stokvels primarily make use of savings accounts, which generally earn a low interest, with growth that often doesn’t beat inflation. According to a report by Alexander Forbes, savings may even be eroded.
- Lack of governance and formal regulation can leave schemes vulnerable to fraud or negligence.
- Depending on the stokvel, funds may not be easily transferred or a fixed contribution may be in place, meaning little or no flexibility.
According to Tisani, it is important to explore a modern approach to stokvels and to ensure that clear rules, roles and responsibilities are set out from the beginning to ensure your investment is protected, and set up to grow wealth. Tisani sets out the following steps to ensure that your stokvel is on track:
- Establish an official document for the investment club, stating the purpose of the club as well as all members and banking details.
- Appoint a club representative to act on behalf of the group.
- Establish the rules of engagement - how often meetings should be held, how many people are allowed in the investment club and when withdrawals can be made.
- Partner with a professional financial adviser to ensure the club strategy speaks to each member’s individual needs and the investment strategy stays on track.
Tisani concludes that it’s worth getting professional financial advice to take your stokvel to the next level – a modern investment club that aims to build wealth for its members. "An investment club isn’t a get-rich-quick scheme. It’s based on long-term goals, and if managed efficiently can create growth, generate holistic financial wellness and support future generations."