SOUTH Africans are renowned for being big spenders and not savers, and the trend spells a dire future for many individuals.
As a nation, SA has been dissaving since 2005.
Alarmingly, the net savings ratio (household savings as a percent of disposable income) is now running at -2,3%.
The situation is a far cry from just two decades ago when SA’s savings ratio was as high as 9,7%. SA also stacks up poorly against its Brics partners, whose savings ratios range from Brazil’s 5% and Russia’s 11% to an astounding 30% in China and 26% in India.
SA’s poor savings ethic has serious long-term consequences, warns John Loos, FNB household and property analyst. “People will not be able to afford to retire,” he says.
Even those with a pension scheme to back them are at risk. The median monthly pension received by pensioners is a mere R3 800, says economist Mike Schüssler.
Consequences of inadequate saving for retirement are already being seen in the growth of the sandwich generation — those supporting ageing parents and their own children.
Old Mutual’s just released Savings & Investment Monitor shows that 25% of all working metropolitan South Africans now fall into the sandwich generation. This is up from 23% in 2014 and 21% in 2013 and the highest since the monitor’s launch in 2009.
“We are also seeing a shift in the sandwich generation from lower-to higher-income segments,” says Lynette Nicholson, Old Mutual research manager.
Many sandwich generation members are being pushed into a financial corner. Over half (52%) of those surveyed would have to borrow to cover a R10 000 unexpected expense, while a further 28% would not be able to cope at all with an expense that size.
Leon Campher, CE of the Association for Savings & Investment SA (Asisa), lays the blame for SA’s poor savings ethic squarely at the door of consumer spending habits. “We are dealing with an [SA] ingrained culture of conspicuous consumption,” says Campher.
Until recently, consumers also had very easy access to credit at record low interest rates. They took full advantage. Between 2007 and the first quarter of 2015 consumer indebtedness rocketed
by R550bn to R1,6 trillion, according to the National Credit Regulator (NCR).
It has left many consumers nursing an oversized debt hangover. Of the 23,11m credit-active consumers, 45% had impaired credit records at the end of the first quarter, reports the NCR. Overall, consumers are burdened by debt at three-quarters of disposable income.
It is a situation hardly conducive to saving and is set to get worse as the SA Reserve Bank’s monetary policy committee (MPC) sets about normalising interest rates.
The process is already under way, the MPC putting through the first 50 bps hike of the benchmark repo rate in January last year and the second, a 25 bps hike, in September. The third, a 25 bps hike, came in July, taking the rate to 6%.
Rate normalisation is not over, says Investec Bank chief economist Annabel Bishop, who forecasts the repo rate to end 2015 at 6,5% and 2016 at 7%.
The hikes come at a time when consumers face rising inflation, not least driven by sharply rising municipal and electricity tariffs, a sliding rand and a petrol price now virtually back at its 2014 average.
The MPC’s own forecast is for consumer price inflation to rise steadily from 4,2% in the first quarter of 2015 and breach the 6% upper level of its target band in the first two quarters of 2016.
It all adds up to bad news. “Deeply indebted consumers are incredibly vulnerable to any price increases. The escalation in the cost of borrowed money is going to have a very real impact on them,” warns Neil Roets, CE of debt counselling firm Debt Rescue, in a written comment.
Rising interest rates are not the only impediment to savings. So too is a heavy tax burden that, according to the OECD, measured on a tax to GDP basis earns SA 10th position as the world’s most heavily taxed country.
The IMF spells out the implications clearly. High personal taxes have, it stresses, “a strongly negative impact on the household savings rate”.
“And you pay far more tax than you think you do and in future will probably pay more,” says Paul Joubert, senior researcher at the Solidarity Research Institute.
Tax extends far beyond the obvious personal tax and value-added tax, which, says Joubert, accounted for 34% and 26%, respectively, of government’s tax revenue in the 2013 tax year. He points to myriad hidden taxes.
In the 2013 tax year a further 10% of tax revenue was derived from excise duty on liquor and tobacco, 5% from the fuel levy and 5% from import duties.
Beyond government’s tax take come the likes of municipal taxes and road toll fees. Arguably, school fees, which do not exist in countries such as the UK and Australia, and the cost of private security represent another form of tax.
If there is any hope for reversing SA’s savings rot it will not come through dialogue, says Campher. “As a savings industry we must innovate.”
Among solutions in place is the Fundisa education unit trust fund, aimed at promoting savings for education among lower-income groups. Fundisa, a joint Asisa/government initiative, has so far attracted about 25 000 investors. Certainly innovative, Fundisa enhances benefits of beneficiaries by 25%/year to a maximum of R600/year.
On a more ambitious scale, Campher says Asisa is working with government to create a savings vehicle to assist people to save enough to put down a deposit for their first home.
The fund, says Campher, would be similar to the UK’s new Help to Buy savings account that pays a bonus of up to £3 000 on £12 000 savings when the investor buys a first home.
More Asisa savings initiatives are in the pipeline. Welcome as they are, reversing the personal savings rot appears set to remain a very long-term vision.