Savings dwindle as challenging economy tightens public belt
49% of South African households are saving less than they were only a year ago.
TOO little savings by citizens and insufficient foreign investment in South Africa will drive the economic climate into an even dryer spell.
This is serious concern for Old Mutual Investment Group economist Rian le Roux, who says the company’s yearly Savings and Investment Monitor has indicated 49% of South African households are saving less than they were only a year ago.
‘The collective savings of a country play a major role in bolstering the national economy through financing investment in social and physical infrastructure.
‘The monitor reveals that as a nation, South Africa is simply saving too little, which has the potential to cause severe financial pain in the future.
‘Since 2000, total gross savings in our 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.’
Infrastructure affected
Le Roux explains if foreigners do not invest, investment in infrastructure such as roads, bridges, hospitals and ports will decrease, and undermine the already weak growth potential of the economy.
‘Low savings lead to low growth, which leads to even less saving – thereby creating an ongoing vicious cycle.
‘As far as personal savings are concerned, households have been saving less for more than 10 years.
‘In simple terms this means that, on aggregate, people spend more than they earn.
‘The majority of households are not accumulating enough of a financial nest egg to finance future liabilities, such as their children’s education and their retirement.’
Road to rough retirement
‘People often do not realise the level of savings required to fund their retirement needs and therefore do not plan sufficiently, resulting in drastic lifestyle adjustments during retirement.
‘Saving more is a conscious decision that requires spending less today.
‘Difficult as this is, the reality is that it is only going to get more difficult in the future.’
He emphasised the reversal of South Africa’s poor savings record can be achieved only through a sustained collaborative effort across the economy.
‘On a household level, one of the ways forward is for each person to start setting aside money at the start of the month.
‘A common mistake people make is spending too much money each month and then finding that there is nothing left to save.
‘Seeking advice from a registered financial planner is a great starting point.
‘This will help consumers to assess their current financial situation, as well as to plan appropriately for the future.’
