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Lower fuel prices and a lower repo rate can help to improve the poor state of the nation’s pockets, but they will have to approach their finances differently to make these reductions work for them.
South Africa is infamous for having the worst savings rates in the world, with a multitude of surveys telling us it is difficult to save when you cannot make ends meet while struggling to pay off debt, Cheslyn Jacobs, chief commercial officer of TymeBank, says.
“After years of unrelenting financial pressure, our customers had to become financially disciplined and resourceful. This will make it easier for them to get back on their feet when things start to improve, helped by the drop in fuel prices and what we hope is the first of several interest rate decreases.”
With just under 10 million customers and a base that includes everyone from SRD grant recipients to middle-class consumers and affluent savers, TymeBank has been gathering customer feedback and data over the past three months to get more insight into consumers’ financial circumstances, including their spending and savings behaviour.
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Jacobs says the inadequacy of retirement savings among TymeBank customers is cause for concern, with only 10.3% of respondents indicating they are saving towards retirement, regardless of income or age.
“This is extremely worrying. Even customers who contribute to retirement funds should think carefully about dipping into their retirement money by taking advantage of the two-pot retirement system, particularly if you are over 40.”
What are consumers doing to make ends meet? Jacobs says customers across the income spectrum say they have resorted to a variety of measures to stay afloat, with less than 5% of respondents reporting little to no change in their lifestyle despite the significant increase in living costs.
“Besides cutting back on expenses wherever they can, TymeBank customers have been cashing in their savings, turning to friends and family for financial assistance and starting side-hustles, while just under 14% said they opted for personal loans, with an equal number turning to banks and microlenders.
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“What is always worrying is the number of people who borrow from informal lenders. Although just under 7% of respondents said they have gone this route, we know that national estimates are considerably higher.
“While micro-lenders have a role to play, there are many unscrupulous loan sharks charging exorbitant interest rates. Therefore, choosing a reputable lender should always be the preferred option, provided you have a good track record,” he says.
The customer feedback also showed that low-income earners, who are mostly women, spend at least two thirds of their income on groceries and essentials.
“During Women’s Month we polled a group of women, most of them single parents and breadwinners with a monthly income of between R1 000 and R5 000. They reported spending at least two thirds of their income on groceries and essentials, with as much as 20% of their money going to childcare and related expenses.”
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He says interestingly, the data shows that 55% of the bank’s savings customers, regardless of income, are female, which confirms the notion that despite being financially disadvantaged, women are better savers. Among the women who are saving, a third are putting money aside for their children’s education, while 23% are doing so for personal financial security.
“More generally, we have seen the number of customers with saving accounts increasing by 35% over the past year. One in four persistently active customers have a savings account, with the largest number of savings account holders aged between 26 and 35.”
Jacobs says the bank has also noticed that some customers have short-term saving goals, while others have long-term saving goals.
An analysis of the data shows that users of its flexible savings product tend to be short-term savers’ with 90% withdrawing their funds within two months of opening their accounts. The remaining 10% of customers, who have higher balances, tend to hold on to their deposits for considerably longer periods, some spanning multiple years.
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“The data also shows that while customers have limited funds available to them, they are wisely choosing high-interest products to make the most of their money. If you consider that 65% of respondents told us they saved less than R5 000 in the preceding 12 months, what we see is that regardless of income, consumers are hustling to make their money work for them.”
Jacobs says you should of course always aim for the highest returns, but the golden rule is not to put all your eggs in one basket. “Ideally, you want money in a flexible savings account in case of emergencies while you build up a nest egg in a fixed deposit account that pays high interest rates.
“We see encouraging trends among customers who are saving, with just under a quarter of people we polled reporting that they save a fixed percentage of their income every month. This is the kind of savings discipline that all South Africans should aim for,” he says.
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