Savings month: this is what South Africans save for

South Africans save for food and funeral costs and do not have their sights set on capital investment or big-ticket items as they feel the pinch of high prices, high interest rates and little savings which are crucial during stressful periods for individuals and households.

During the peak of Covid-19, when mobility was restricted and only essential services and outlets were operational, many of us had to dip into our savings. The proposed new changes to the two-pot retirement system also highlights the importance of putting money away.

“Consumers are feeling the pinch and they do not prioritise saving due to the challenges of rising costs coupled with inflation and interest rate hikes. As one of the most unequal societies in the world, we can note that savings per LSM is very telling, with only the top-end of the scale having the ability to save,” says Andrew Fulton, Director at Eighty20, a consumer strategy, research and analytics business.

Using MAPS data gathered by Eighty20 to provide insights from a nationally representative survey of 20 000+ South Africans and the FinScope Consumer Survey that is uniquely aimed at increasing the understanding of the informal financial product/service market, Eighty20 investigated the saving behaviour of South Africans.

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Put money away for a rainy day they said

The annual FinScope Consumer (2022) survey shows that 52% of adults save for rainy days in formal and informal mechanisms, with 26% using informal mechanisms, while 11% keep money at home.

However, Fulton says, what is more concerning is that most of these savings are for food and funeral costs, rather than for capital investments or large item purchases. “This shows the limited capacity of adults to adequately cover their consumption expenses, let alone save for large items.

“A closer look at the data reveals that 15% of adults have retirement products, 12% have short-term savings, 11% have medium-term savings and only 4% have long-term savings or investments products.”

While saving for food places individuals in a risky financial position, non-cash options exist and are adopted more widely.

Fulton warns that consumers who only save for food and consumables will not be able to sufficiently manage any additional financial shocks. “As a result, adult South Africans are turning to non-cash options with a notable increase in the use of loyalty points. In 2022, there was an eight-percentage point increase to 46% of adults who use loyalty points programmes from 2021.”

However, savings should not be restricted to monetary instruments to help consumers and households to make the most of their current circumstances.

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Could savings be a financial literacy concern?

Fulton says savings is what is left after paying for expenses. Generally, this can be expressed as income less expenses equal savings but there is another side to it that is implicit and affects behaviour.

“Some financial experts recommend saving first before paying expenses, while others typically follow the traditional approach of paying expenses first and saving afterwards. This is the behaviour side of the equation.”

He says today a financially savvy mindset is crucial and it is concerning that 83% of economically active adult South Africans (24.4 million) do not have retirement plans. This statistic is alarming, considering the high dependency rate on social security welfare from government.

Abel Motsomi, senior data and analytics specialist at FinMark Trust, says this Savings Month, it is imperative for each of us to envision our future selves and take the appropriate steps today. “Savings serve as a valuable mechanism to achieve positive goals. Firstly, teach children to develop a savings culture from the little they have, such as lunch money.

“Secondly, adults can save to prepare for financial shocks beyond covering funeral expenses. Lastly, plan and save adequately towards a post-retirement life when income will be limited. The quality of savings depends on what you are saving for and how saved up you are.”