Issue: September 2012 / November 2012
Poor savings . . .
. . . even by comparison with SA’s emerging-market competitors, points out Liberty Corporate head of umbrella funds Willem Loots.
SA has a notoriously low savings rate. Combined with high levels of personal debt among consumers, it paints a concerning picture for the future particularly when compared with the far higher savings levels achieved in many other emerging-market nations.
Loots . . . what’s to be done?
According to the Reserve Bank Quarterly Bulletin for March 2012, SA household savings as a percentage of disposable income fell 0,2% in the first quarter of this year. Further, debt as a proportion of disposable income in the same period was 75,9%. While this is down from the peak of 80,6% in 2008, it remains extremely high when compared to the level around 53% just over a decade ago.
Promoting increased levels of savings among consumers is critical, not just to secure their own financial future but also to grow the SA economy. If more consumers opt to save through mechanisms such as retirement schemes, more capital is made available to increase SA’s productive capacity.
This is achieved through the underlying investments in the private sector (through shares, for example) and government (through investment in government bonds). At present SA’s economic development is heavily dependent on foreign capital, the availability of which tends to be very sensitive to global economic developments.
Higher household savings levels therefore tend to have a positive effect on the collective in addition to benefits for the individual. Currently, SA’s gross savings percentage only equals around 16% of gdp. According to a 2010 World Bank report, key emerging economies such as China and India last reported gross savings as a percentage of gdp at 52,3% and 31,6% respectively.
Government plans to be at the forefront of encouraging a greater sense of awareness among South Africans of the need to save. Treasury’s latest proposals advocate the possibility of compulsory preservation of retirement savings. This is one strategy that may improve the gross savings level over time.
However, such proposals must also take into account the realities of an emerging economy. There is little point in forcing someone to preserve their retirement savings if they are unable to provide food for their dependents in the immediate future.
It is also crucial that the financial services industry plays its part in educating consumers of the need to save. SA has a sophisticated and wellregulated financial services industry with a range of products that can be used for saving purposes. There are multiple channels that consumers can choose through which to save. They include a life insurance policy, pension fund, or discretionary savings such as a bank account or unit trusts.
For example, money placed in a retirement annuity may be invested into various asset classes (e.g. equities and property) which gives the investor favourable real returns over time. Having a portion of personal savings in cash deposits is important to ensure money is at hand during unforeseen events. A life insurance policy may also act as a savings tool in that it provides a method of wealth transfer to beneficiaries, which will help secure their financial futures.
So far, SA’s emerging middle class has had little impact in changing our country’s savings profile. It is crucial that we promote the need for a greater level of savings amongst this group, and all sections of society, to help improve SA’s domestic savings rate.