More than 70% of middle class has financial flu

Almost 73% of professional, middle class South Africans experience financial stress.

This is according to the 2017 Sanlam Benchmark Survey, an annual retirement funding study, which surveyed more than 1 300 employees about their financial wellness. The survey described financial stress as emotions associated with the difficulty an individual or household may have in meeting financial commitments due to a shortage and/or misuse of money.

“If it was something else – if this was a disease – this would be an epidemic. If this was the flu, then 70% of South Africa said they’ve got the flu at the same time. It would be headline news,” says Viresh Maharaj, CEO of Sanlam Employees Benefits: Client Solutions.

The middle class is the spine of the economy and the tax base and a lot of South Africa’s sustainability as a nation depends on this group. The fact that almost three-quarters of this group is financially stressed “is a scary place to be”, he adds.

Almost a quarter of those experiencing financial stress said they were stressed about the issue all the time.

The five most significant sources of financial stress were short-term debt obligations (car payments, credit cards and personal loans), not being able to save for the future, not having enough for unanticipated emergencies, extended family financial obligations or ad hoc requests for financial support and paying for school or university fees.

Although there are often suggestions that poor financial decision-making is the result of a lack of education, the findings suggest that this is not the case. More than 95% of the respondents had a post-matric qualification. Almost 80% of respondents had a diploma, degree or post-graduate degree. Just over 10% had a Masters or Doctoral degree. More than 60% of the respondents earned more than R300 000 per annum.

While very demanding economic conditions have contributed to the financial difficulties many South Africans are facing, the culture of consumerism has added to consumers’ woes.

Maharaj says the South African economy is being driven by consumerism. Research from UCT’s Graduate School of Business suggests that when it comes to generational shifts – particularly in the black population – conspicuous consumption is a means of demonstrating competency.

The country also has fantastic advertisers that create a demand that people feel the need to fill. While this is what the advertising industry is supposed to do, it also speaks to a culture of consumption on steroids, which needs to be addressed, he says.

Although short-term debt obligations are already at the top of the list of stress sources, “frictionless lending” is still common and it may be easier to get a loan than to invest a similar amount.

While the National Credit Act includes various checks and balances and has protected South Africa against many bad outcomes experienced internationally, it doesn’t address the fact that being able to pay for something is not the same as being able to afford something, he says.

Similarly, although the Financial Advisory and Intermediary Services (Fais) Act has been implemented for good reason, it acts as a barrier for lower income earners to access advice because it is too expensive, Maharaj adds.

The findings suggest that most middle-class South Africans may be struggling to make ends meet in the short term, which may limit their ability to adequately provide for their retirement.

According to the survey, not being on track to retire ranked as number 6 as a source of stress, implying that individuals may rather be focusing on their immediate financial concerns.

Maharaj says over the last number of years they have progressively discovered that the problem of retirement funding cannot be addressed in isolation. Moreover, there is no silver bullet that would solve the retirement funding issue once and for all.

“You can’t look to increase an individual’s net replacement ratio from 50 to 75[%] by focusing on their contributions and investment returns. That individual is part of a system – a system where there is an employer, there is a family, there are socio-economic constraints [and] there are human emotions at play.”

The net replacement ratio is the percentage of a person’s final salary immediately prior to retirement that he or she receives as an income in retirement. A very broad rule of thumb suggests that individuals should aim for at least 75%.

Roughly 17% of the respondents indicated that they have made no provision for retirement and consider themselves “in trouble”. Over 60% said they would work beyond retirement age, while 73% said they would reduce their current standard of living.

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