The economy is struggling to eke out even 2% growth, unemployment is up to 26% (and is far worse for young work seekers and when those who have given up looking for a job are included) and the stock market has taken a nosedive since April. The Rand is under severe pressure and talk is mounting of the need to increase interest rates later in the year.
It is little surprise the country's savings rate refuses to budge from about 14% of GDP and far less than that at the household level. The reality is that households in general in SA are struggling to put even a few percent of their income into savings - the bulk of the savings are from the corporate
sector. Household savings to disposable income continues to remain in negative territory (-2.3%).
Household spending will be impacted further by the increase in personal income taxes, higher living costs associated with the rise in fuel levies and electricity tariff hikes. While saving is about discipline, most would argue it is far easier to save when the economic wheels are well greased. That should, however, not be a reason to not do it.
In fact, there are signs of significant green shoots and the future need not look so gloomy. BankServ Africa says there has been growth in take-home incomes going through the South African payment system. Overall the growth in take-home salaries means that customers have excess funds to put away in deposit taking institutions.
Moreover, consumers have not been able to easily supplement incomes with debt as both bank and non-bank lenders have tightened credit criteria towards households. In 2014, household credit growth slowed to a rate of 3.4%, from a prior 5.5%.
The increased use of technology to create efficiencies and reducing costs and the breaking down of other barriers, like a lack of education, are also setting South Africans that would never have put anything away for a rainy day before on course to rethink their personal balance sheets and begin saving. They are realising that the more they save, the greater the effects of compounding down the line.
Our research shows that household industry deposit growth as at March 2015 was 14.93% compared to 14.27% in March 2014 and in the 12 months up to March 2015 the average year-on-year growth was 15.48% compared to 10.25% during the same period a year earlier. These are certainly steps in the right direction.
The new tax-free savings account is an example of one of the new ways many South Africans without any formal savings can now get involved and begin their savings journey. These accounts became available on 1 March 2015 and allow individuals to contribute up to R30,000 per year or R500,000 in a lifetime. The best thing of all is they are tax-free - returns in the form of interest, dividends, capital gains or earnings on such products do not go to the Receiver.
Products like Tax Free Call have been made available and the take-up is expected to be positive, particularly because fees have been reduced - there are no monthly management fees or commissions and cash or cheque deposit fees are not charged.
Lower income groups remain reluctant savers due mainly to a poor understanding of financial planning. Levels of debt to disposal income need to come down further and while education will play a role it is also a symptom of a credit driven consumer culture and lack of consistent saving. However, the road ahead need not be littered with people struggling to maintain their standards of living because they did not save early enough.
Saving extra cash, budgeting, cutting back on debt and saving more when debt servicing costs reduce are just some of the techniques to use. We have launched products that enable savers to put even a little away that would have gone to unnecessary, luxury purchases. Sometimes the savings journey starts with a few simple steps like these - but the benefits down the line will be enormous for the country and its citizens alike.
