subscribe: Daily Newsletter


SA’s economic growth depends on savings


Almost half (49%) of South African households are saving less than they were a year ago.
This is one of the key findings of the latest Old Mutual Savings and Investment Monitor, which tracks the shifts in the financial attitudes and behaviour of South Africa’s working metropolitan population.
This is the lowest savings level reported since the inaugural 2009 monitor, when households were recovering from the financial turmoil that took place in 2008.
According to Old Mutual Investment Group chief economist Rian le Roux, the collective savings of a country play a major role in bolstering the national economy through financing investment in social and physical infrastructure.
He says that, along with other indicators, the Old Mutual Savings and Investment Monitor reveals that as a nation, South Africa is simply saving too little, which has the potential to cause severe financial pain in the future.
“Since 2000, total gross savings in the South African economy has remained broadly unchanged at approximately 16%, which is way too low to finance investment of around 20% of GDP, leaving the country heavily reliant on foreign capital inflows to finance the shortfall.”
Le Roux unpacks the implications of this by explaining that if foreigners do not invest in South Africa, investment in infrastructure such as roads, bridges, hospitals and ports will decrease, undermining the already weak growth potential of the economy.
He explains that some of the negative knock-on effects of a poor national savings rate include businesses and investors looking for opportunities abroad, increased pressure on the country’s unemployment rate and escalating levels of socio-economic unrest. “Low savings lead to low growth, which leads to even less saving – thereby creating an ongoing vicious cycle.
“As far as personal savings are concerned, households have been dissaving for 10,5 years. In simple terms this means that, on aggregate, people spend more than they earn. The majority of households are not accumulating enough of a financial nest egg to finance future liabilities, such as their children’s education and their retirement.”
Le Roux says one of the key problems contributing to the low savings levels is that people often don’t realise the level of savings required to fund their retirement needs and therefore don’t plan sufficiently, resulting in drastic lifestyle adjustments during retirement.
“Saving more is a conscious decision that requires spending less today. Difficult as this is, the reality is that it is only going to get more difficult in the future.”
He says that a reversal of South Africa’s poor savings record can be achieved only through a sustained collaborative effort across the economy.
“On a household level, one of the ways forward is for each person to start setting aside money at the start of the month, paying themselves first, so to speak. A common mistake South Africans make is spending too much money each month and then finding that there is nothing left to save or spending too much on luxuries they cannot really afford.
“Seeking advice from a registered financial planner is a great starting point and will help consumers to assess their current financial situation, as well as plan appropriately for the future.”
Dave Macready, chief executive of Old Mutual South Africa, says that in such an uncertain and volatile environment, South Africa cannot achieve its desired growth without taking responsibility and introducing positive social change.
“A key area of responsibility that we take seriously is financial education and advice to improve the savings culture in South Africa, as this is the only way we can ever hope to achieve sustainable growth – not only as a business, but as a nation.”