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Money is so tight for more than half of working South Africans that unexpected expenses of R10 000 would force them to take out a personal loan, rely on credit facilities or borrow from family or friends. Another approximately 30% say they have no idea at all how they’d handle an expense like that.
This is one of the sobering findings of the 2015 Old Mutual Savings & Investment Monitor, which is launched today and gauges the financial attitudes and behaviour of working metropolitan South Africans.
Lynette Nicholson, Research Manager at Old Mutual, says: “It’s deeply concerning that less than 20% of breadwinners have enough of a financial buffer or an emergency fund to be able to cover a relatively modest unexpected expense.
“The rising cost of daily living expenses is squeezing disposable incomes and leading to a decline in savings: 41% of all respondents report they’re saving less than they were a year ago. The pain is felt most acutely in the 40 – 49 year age category: 31% of those with debts in this group are overdue with their repayments. It is no coincidence that this is also the group most likely to belong to the so-called Sandwich Generation: breadwinners who support their children as well as their parents.”
On the upside, says Ms Nicholson, “There’s a growing awareness of the benefits of saving and investing. Around 60% now contribute towards a pension/provident fund and/or retirement annuity, compared with around 50% in 2012. The incidence of saving through unit trusts, particularly among higher earners, has also risen steadily: from 10% in 2009 to 22% in 2015.
“What’s also good news is that 18 – 23 year olds (the Z Generation) are displaying a healthy attitude towards money management: 77% of them would use a R10 000 bonus to pay off debt or invest in the future.”
Another indicator of a strengthening savings culture is the marked growth in the number of working metropolitan households saving in stokvels. “It’s increased from 45% in 2014 to 58% in 2015 – and is most pronounced in the R14 000 - R19 999 and R40 000+ household income categories.”
While this growth is a good indicator of the trust placed in stokvels and a sign of the power of social networking, there are perhaps more appropriate alternative savings vehicles for medium to longer term goals and wealth creation.
“Some stokvels are not offering any growth on the savings they manage. In this case, the new tax-free savings initiative launched earlier this year is a solution that offers greater potential for growth especially over the longer term,” says Ms Nicholson.
“It’s crucial for South Africans to strengthen their financial understanding and seek expert financial advice on financial planning, debt reduction and wealth creation - so they can do great things with whatever money they have.”