IT IS no secret that South African workers are, on the whole, not great at saving. While we could endlessly debate the reasons for this, and many would argue that they include a struggling rand, constant petrol and electricity price hikes and various inflationary pressures, arguably the single biggest factor that is preventing South Africans from saving today is uncertainty.
The problem of a lack of savings culture of the workforce is further compounded by steadily rising levels of household and personal debt. While most South Africans are quick to cite all the challenges facing the country as the reasons why they can’t save for the future, they are less inclined to see these same factors as compelling reasons why they should not be spending right now either. As a result, many South Africans face a double whammy of negative prospects when it comes to their future financial situations. It is an unfortunate truth, but we are increasingly becoming a nation living on debt, rather than one that is focused on building a more positive future through savings.
From a psychological perspective, the reason for not saving during the current volatile and uncertain economic times seems obvious. Saving is, by its very nature, an optimistic activity. After all, nobody would be willing to regularly put aside some of their hard-earned money without having at least a measure of confidence that they will get more of it back one day. Unfortunately, this confidence has been somewhat eroded of late by the rising levels of pessimism that have crept into the collective South African psyche.
But it really doesn’t have to be that way nor should it be. In fact, if there’s one proven way South Africans can counter the pessimism and uncertainty they are feeling, it is through committing to developing the habit of saving. Apart from the act of opening a savings account and putting away money for the future being an optimistic choice, a national savings culture is also a key way in which South African consumers can contribute actively to overcoming the economic challenges and uncertainty facing the country.
It is a known fact that saving is a good way to instil economic confidence, restore businesses and create jobs. So, by choosing not to let the insecurity of short-term volatility and uncertainty stop us all from saving, we all have an opportunity and indeed a responsibility to take an active role in turning our fortunes and those of our country around. And the more people who save, the greater that positive impact will be.
Of course, there are many other reasons why it makes sense to save, even when market volatility and economic uncertainty abound. For one, a good, longer-term savings account, like a term or fixed deposit is not subject to the ups and downs of the investment markets, so these accounts are excellent ways to sit out the volatility rollercoaster and possibly even achieve a little more cash diversification for a personal wealth and investment portfolio in the short term.
It is also worth considering that the gap between saving and investing has narrowed fairly significantly in recent years as banks have introduced some compelling shorter-term cash growth options and the government has sweetened the savings deal with its tax-free savings allowance. This combination of factors has effectively put paid to the long-held belief that saving wasn’t viable because it didn’t offer opportunities for decent growth. When you consider that the majority of shares on the South African markets delivered little to no growth over the past year, the high single figure interest rates offered by many of today’s savings products are attractive.
Of course, that’s not to say that people should be cashing in their stocks in favour of savings accounts. Long-term share market investment will always be one of the best ways of steadily growing wealth. But the significant value and growth of a good savings plan, particularly for shorter-term goals, certainly should be given its rightful place in any financial plan, especially during challenging economic times.
Sisandile Cikido is the head of Retail Investments at Nedbank.