What’s driving South Africa’s poor savings culture? And how can we shift the dial?
While it’s widely accepted that a strong savings culture is needed for a country to experience economic growth and development, the last few years have put a sizable spanner in those plans for South Africa. Savings levels depend on both the local and global economies, and, recently, neither of these environments has been particularly stable. However, steps can be taken to shift the dial.
Why do we struggle to save?
It's important to recognise a difference between poor savings due to a lack of means or purely as a result of bad savings habits, which could be attributed to limited education rather than unwillingness. According to the Quarterly Labour Force Survey, for the first quarter of 2022, South Africa’s national unemployment rate stood at 34.5%. Concerningly, the youth unemployment rate is even higher, currently sitting at 63.9% for those aged 15-24, and 42.1% for those aged 25-34. Studies from 2021 also found that around half of South Africa’s working population earned less than R13 044 a month.
With figures like this, it’s no wonder the savings culture is declining. As Zibusiso Moyo, head of Digital Account Management Services for Everyday Banking at Standard Bank, says, “without access to disposable income, necessities trump savings contributions.” This is particularly true for middle-income South Africans struggling with financial constraints such as unemployment, salary cuts, or multiple dependents.
However, poor saving is not unique to South Africans. This is a challenge for many people around the world. In 2019, Australia saw a household savings rate of just 3.7%, while rates in the UK and United States were 6.5% and 7.5% respectively. The reality is that saving money is difficult.
Behavioural science research has identified two main reasons why people struggle to save. The first is that, because we get swept up with what other people are doing, we start living beyond our means. We sacrifice savings and good financial habits in order to keep up with trends. In this instance, people are more concerned with spending money to maintain the lifestyle they see around them. They might ignore smarter, long-term financial decisions like saving.
Today’s social media-driven consumer society has not helped, and the old adage about appearance versus reality has become particularly relevant. If people think what they see on social media is real rather than curated content, they may feel they are falling behind. Our susceptibility to status and appearance can lead us astray when it comes to long-term financial well-being.
The second reason we struggle to save is that we have a preference for the ‘here and now' as opposed to the future. This is called present bias. Saving becomes difficult because the benefits will only be realised years later. A series of neuroimaging studies found that when participants were asked to think about themselves in the future, the areas of the brain that were active were similar to the regions that lit up on scans when participants were asked to think about a stranger. Because the future feels so far away and uncertain, it’s almost as though we’re giving money to someone else – no wonder it’s so difficult to save!
How can we change our savings culture?
According to American economist Richard Thaler, the best and most effective way to save is to automate wherever possible. He suggests setting up debit orders on payday so that a portion of your salary is immediately allocated to a savings or investment account. This removes willpower from the equation, avoiding the question of spending money now versus saving for the future.
It’s also crucial to have a clear idea of what you’re saving towards. Outlining financial goals and defining the steps to achieving them can help support the need to save. By writing these targets down, goals go from being seemingly abstract and can be transformed into something with tangible physical and emotional value. The more real a goal becomes, the more likely it is that we will pursue that goal and align our behaviour with our long-term ambitions.
Another strategy is to ask for help. Improving education and understanding of basic financial concepts is critical to cultivating a culture of saving. To achieve this, government and financial institutions need to offer appropriate educational material, and people need to reach out if they need help. Financial advisors exist to help people make better financial choices, helping to bridge the knowledge and information gaps. Asking the right people for help can fast-track a savings journey to ensure people get the right advice for their circumstances and goals.
What can be done to help?
Tackling the complex challenge of South Africa’s savings rate should be approached from several fronts. With the help of financial institutions and government departments, incentives to save could be implemented – such as tax-free savings accounts and tax rebates for high savings rates. It’s also important to shift the current culture of credit toward a culture of saving. Right now, applying for credit is seen as easier than saving – and, it is. However, little thought is given to interest, and consumers often end up spending substantially more than they think they will.
Because higher employment rates lead to a greater propensity to save, initiatives to support small businesses and enhance employment opportunities should be encouraged. Supported by Standard Bank, the Youth Employment Service is an example of how private enterprises, government, and labour societies can work together to improve youth employment and further economic growth.
For an economy in transition, savings are crucial. A higher savings rate encourages local and foreign investment, which helps to expand the economy and raise earnings. This, in turn, helps raise savings. If we can establish this cycle of growth and savings, the country and our citizens will be better off.
