Don’t over spend

In credit-hungry South Africa, where household debt is at 75,4 per cent of disposable income while the household savings level remains at a mere 1,7 per cent of gross domestic product (GDP), the South African Savings Institute (SASI) faces the momentous task of reminding consumers about the need to spend wisely and set aside a portion of their end of year earnings, in order to meet new year requirements and future household financial demands.

This is part of the SASI mission to develop a robust culture of saving in South Africa.

“South Africans spend more than they earn throughout the year, and this is compounded over the Festive Season when we are inundated by marketing and tempted by material goods we desire rather than need. People in all income brackets give into debt just to be merry during the Festive Season,” says Prem Govender, Chairperson of the Savings Institute.

“We must remember that while the Festive Season creates celebration pressure, this soon is followed by household financial obligations in the new year that people cannot avoid or delay, such as equipping children for school, getting to work, medical expenses as well as food costs.”

SASI provides financial education and relevant financial information to consumers through various campaigns throughout the year. This year’s Festive Season campaign, launched on 6 November under the theme ‘Spend Wisely, New Year Ahead’, aims to refocus consumers on wise spending, to guide consumers on how to avoid unnecessary consumption expenditure and to drive a culture of saving during the Festive Season. Campaign activities compliment ongoing campaigns by the Institute targeted at children (teach children to save), university students, communities, the workforce and stokvels.

According to Govender, the steep rise in the cost of living has left little to save in 2013 and this will continue in 2014.

“The Consumer Financial Vulnerability Index indicates that the pressure on consumers’ cash flow remains high. Yet, the celebrations continue and many pay for annual holiday expenses out of long-term savings, annual bonuses or increased credit card debt. Gifts are bought on store-cards or through the many credit options available. Responsible spending over the season – without incurring debt – is a far healthier option for households’ long-term financial wellbeing. We need to take heed in the message of the Finance Minister’s Medium Term Expenditure Framework, that without savings and investment, our aspirations will remain unrealised,” says Govender.

Govender points out that South African savings and investment rates, at below 20 per cent of GDP, have remained low, particularly in comparison to the BRICS, and the forecast for the next couple of years is not positive. According to the World Economic Forum, savings in China are at 51 per cent, India is at 32 per cent while South Africa is at 16,5 per cent.

While the 2013 Fin Mark Fin Scope study does show increased penetration of savings vehicles, such as provident funds and informal savings or investment groups, long-term savings still remain a challenge and by 2012, 83 per cent of South Africans did not have any formal retirement product. 58 per cent of adults admit to not having enough money to save after covering all their spending needs. The new year brings new tax implications that consumers need to be aware of.

Tips to survive the Festive Season:

1. Resist sale, think save! Clearly distinguish between needs and wants.

2. Make homemade Christmas gifts and only go on holidays you can afford.

3. Have a clear budget for your requirements in the new year. Create a budget using the SASI budget tool.

4. Use free online tools to track your spending and debt and know where every cent of your income goes.

5. Pay cash for all purposes and don’t be trapped by easy credit – in fact, cut up those store credit cards!

6. Visualise what you want to save for and start saving more. Save your bonus and make it multiply.

7. Service your debt and stick to the payment terms. If you cannot service your monthly debts, discuss your situation with your credit providers before it is too late. Consumers can seek assistance from a registered debt counsellor by contacting the NCR on 0860 627 627.

Avoiding the credit trap:

The cost of buying on credit, even for a short period such as two years, can result in a consumer paying the effective interest of double the quoted interest rate. The maximum interest rate allowed by the National Credit Act is 21 per cent a year. Once initiation fees, monthly premiums for compulsory credit life insurance, service fees and vat has been added, R5 000 spent on credit today at a large retail store may cost between R6 200 and R9 000 by the time the debt is repaid over 24 months.

It’s better to pay cash, or even consider that if the instalments were paid into a saving vehicle, you can end up multiplying your cash.

Credit also needs to be managed carefully. According to the National Credit Regulator, almost half of all credit-active consumers have impaired credit records and 9,53 million consumers are in arrears by three or more months, or have a debt judgement or administration order to their names.