Many South Africans saving informally, Old Mutual finds
Picture: Thinkstock
Advertisement
Informal savings vehicles and funeral policies remain the most popular savings and investment vehicles used by South Africans, Old Mutual’s latest Savings and Investment Monitor reveals.
Now in its 11th year, the monitor is based on 1 000 face-to-face interviews across seven metro areas in South Africa and is weighted to the working metro population.
It is primarily aimed at gauging attitudes and behaviours towards saving.
About 76% of 681 black households surveyed make use of informal savings vehicles, which Old Mutual defines as stokvels, burial societies, grocery schemes and unbanked cash savings.
Funeral policies remain the largest single savings category, while 41% of survey respondents said they have no formal retirement savings whatsoever.
Source: Old Mutual Savings and Investment Monitor
“The usage of informal savings vehicles is not income-based,” noted Lynette Nicholson, research manager at Old Mutual.
More than 70% of black households earning R40 000 a month and more put money into informal savings vehicles every month. The graph below reflects the different savings vehicles used by monthly household income.
Source: Old Mutual Savings and Investment Monitor
Old Mutual finds that there has been increased usage across all informal savings types. Stokvels remain the most popular, with 59% of black households surveyed contributing to at least one stokvel and those in higher income categories sometimes contributing to more than one.
This is followed by burial societies (34%), grocery schemes (18%) and unbanked cash (18%).
Fidelity National Information Services (FIS) plans to launch an online stokvel platform later this month, which will manage member record-keeping and, eventually, contributions and payments. FIS has also partnered with black-owned iGen Group to offer administration services to stokvel trustees.
Contributions made by high-income and low-income groups to stokvels posted a year-on-year increase, while middle-income groups contributed considerably less and dragged the overall average down.
Source: Old Mutual Savings and Investment Monitor
The uptick among lower income groups may be because stokvels are now acting both as savings vehicle and personal loan provider, based on Old Mutual’s findings.
If stokvels are providing even small loans to members, they will need to register with the National Credit Regulator (NCR).
Old Mutual finds that all types of personal loans are on the increase, including those from financial institutions, friends/relatives and micro-lenders.
The below graph reflects the percentage of respondents in each income category using different personal loan products, with the arrows indicating where a substantial increase has been noted.
Source: Old Mutual Savings and Investment Monitor
Debt servicing levels have increased, according to Nicholson, with 49% of respondents saying they are saving less than they were a year ago and 38% saying their financial situation is worse than it was a year ago.
“An increasing number of people are paying the minimum amount on their debt repayments each month,” said Nicholson.
Household savings critical for higher GDP growth
According to Rian le Roux, Old Mutual Investment Group (OMIG) chief economist, South African households have been “dissaving” for 10.5 years, as individuals spend more money than they earn.
“Since 2000, total gross savings in the South African economy has remained broadly unchanged at approximately 16%, which is way too low to finance investment of around 20% of GDP, leaving the country heavily reliant on foreign capital inflows to finance the shortfall,” he said.
Foreign portfolio inflows are notoriously volatile and can flow out just as quickly as they flow in if investors believe they will earn higher returns elsewhere. Currently, South Africa is reliant on these flows to the tune of $1 billion a month, Le Roux said.
“Sufficient saving is a necessary prerequisite for investment, but for investments to occur, strong macro-economic conditions and prospects must prevail. Savings will find a home elsewhere if there are insufficient opportunities at home,” Le Roux said.
Similarly, the Investec/Gordon Institute of Business Science (GIBS) Savings Index, released in January, found that savings play a pivotal role in improving economic growth by funding investments.
Unfortunately, low business and consumer confidence is not conducive to investment in the economy. Only 31% of Monitor respondents said they were confident in the South African economy, down from 55% in 2015, with a notable drop among respondents in the 18- to 30-year old age category.
Le Roux cautioned that South Africans are going to have to save significantly more in order to retire comfortably, since equity markets are expected to return less in the future than they have in the past.
“High investment returns have historically bailed people out from their low savings,” he said.
