Low savings, sparse insurance: Why we are not empowered

Almost every adult South African – 98 out of 100, to be precise – is now considered financially included, which means they have access to at least one financial product, but even as we celebrate that fact, it unfortunately does not tell the whole story.

As the Financial Sector Conduct Authority (FSCA), tasked with ensuring consumers receive fair treatment from financial institutions, we care not only about how many South Africans are financially included, but also about what that means.

That is one of the reasons we commissioned the Retail Financial Customer Behaviour and Sentiment study, involving a nationally representative survey of 1 200 respondents.

The findings provide valuable insights for all industry stakeholders striving to improve customer outcomes in the financial sector and show that access to financial products is no longer the primary bottleneck.

The quality of outcomes must now take centre stage.

The research shows clearly that while nearly all South Africans may now have access to some form of financial product, most are using them passively.

Among the banks, for example, upwards of 70% interact with their account just once a month, typically to withdraw all deposited cash which they then use to conduct day-to-day transactions.

Such “mailbox-account” use means the account holder’s ability to be more deeply included in the financial sector is limited, as is their ability to access more beneficial services such as savings facilities, loans and insurance.

It also leaves South Africans more vulnerable to crime and limits their ability to save, earn interest and access other benefits offered by the sector.

Unsurprisingly, our research also shows that only about half of South African adults have any kind of formal savings product currently.

The remaining half do not save at all, or rely solely on informal savings like stokvels.

Adoption of insurance remains low, with nearly half remaining uninsured and of those who do have insurance, the majority (63.4%) only possess funeral insurance.

Take-up of other insurance products like medical, income protection or disability cover is extremely limited.

These insights tell us – and should also tell institutions operating in our sector – that there is tremendous opportunity still to create value and meaningful financial inclusion for customers.

But why should we worry at all about engagement?

Engagement is important because deeper financial inclusion drives economic growth because citizens who can leverage the power of financial tools like savings accounts and credit facilities are able grow their own businesses or comfortably minimise the shocks that life throws at us.

The fact that half of adult South African have no savings facility or show that they strongly prefer informal avenues such as stokvels over formal products tells us that our institutions still have a way to go to bridge the trust gap with their clients.