Saving in South Africa: Why Financial Planning needs to Improve

Levels of personal indebtedness in South Africa are stretching the country to its limits. A World Bank report has declared South African consumers the ‘world’s biggest borrowers’, with statistics suggest that South African’s are struggling to manage their debt responsibly.

In the final quarter of 2016, there were 24.31 million credit-active consumers, of which, 9.76 million had impaired records. That means 40 percent are paying more for credit than they need. The trouble is that the bigger car, bigger house lifestyle is still very much alive in South Africa, particularly among the middle classes, and this is threatening the financial stability of millions of consumers.

Not enough savers in South Africa

The only way to reduce this reliance on credit is to improve the understanding of the importance of saving. However, a recent poll has shown that the proportion of South African households that are saving for the future and engaging in long-term financial planning is actually falling. In fact, only a quarter of South African consumers admitted to having funds set aside for emergencies, while less than half have saved anything in the last 12 months.

Levels of saving are particularly low among the younger generation, with millennials (those aged between 25 and 35) at risk of making worse mistakes than their parents when it comes to planning for the future. A survey of the saving habits of young South Africans found that only 35 percent of millennials are currently investing for the long-term. With only 6 percent of South Africans currently able to retire comfortably, it seems the attitudes of younger people have not changed, with most preferring to take home a bigger salary than make a higher contribution into their savings or retirement funds.

Making little changes every day

The important message is that wholesale changes do not need to be made to start planning for the future. With taxation and inflation on the rise in recent years, consumers need to make day-to-day adjustments to make their after-tax income go further.

The personal loans provider Wonga recently put together a list of simple financial changes consumers can make to help kick-start the savings process. However, there are also plenty of reputable and importantly, free sources of advice out there that can lead to improvements.

It’s not just down to low salaries

Low salaries and the high cost of living is often the reason cited by many South Africans for their low levels of savings, but data from the Financial Service Board (FSB) shows this is not necessarily a justifiable excuse. South Africans manage to save just 17.3 percent of GDP, which compares to 50 percent in China and 30 percent in Brazil, both of which have lower average wages than in South Africa.

In response to these findings, the FSB has said South Africans need to do more to adjust their lifestyles so they can contribute a part of their income to a savings scheme. Saving simply means spending less than you earn, but currently, this is not a behaviour many South African consumers are prepared to do.

Do you have tips to help you save that you can share with our readers? Please leave your suggestions in the comments below.