South Africans are notoriously poor savers and the nation’s household saving ratio dropped to 0% in the fourth quarter of 2022 – actually an improvement over the trend of the past decade which has been largely negative since 2006, dropping to a low of -2% in 2008 and again in 2014.
With the increase in cost of living, interest rates and inflation it is becoming more difficult for the average South African to make it to payday, let alone save, and more South Africans are turning to credit to meet their monthly basic needs such as food, clothing, transport, and other bills. Adding to the cost are high-interest repayments, further aggravating the debt cycle.
There are many reasons for our poor culture of saving. For one thing, not many of us are in a position where we feel comfortable saving. Times are tight, and they always seem to be getting tighter. We are also addicted to credit, and too many of us spiral into a pattern of over-indebtedness. Finally, many of us struggle with financial literacy and do not realise the benefits of saving.
With the current cost-of-living crisis, spiralling inflation, and constant cost pressure on households, the idea of saving can feel like a distant dream. The irony is that saving is more important than ever under these conditions. When each month is a struggle to make it to payday, having just a small buffer against the unexpected is critical to a household’s financial well-being.
A key driver of our enhanced ability to save and gain control over our finances is emerging through innovative financial products such as Earned Wage Access (EWA). EWA is a financial wellness offering to employees which allows them to access a percentage of their accrued wages before the end of their payroll cycle. Employees are able to withdraw a percentage of their earned wages, and the amount advanced is subtracted from the final salary amount at the end of the month.
Paymenow’s EWA offering, which is free to employers, has resulted in four out of five customers reporting an enhanced ability to save. Customers are also able to reduce borrowing from informal sources like money lenders and have more cash in hand for emergencies.
Paymenow head of marketing, Denise Neethling says: “Financial barriers, product complexity and limited access are often barriers to entry when it comes to saving, but we’re able to cut through that complexity with our accessible, easy-to-use, range of products, access to a savings feature and focus on financial literacy. This is a big win for the financial wellness of South Africans.”
Paymenow has recently partnered with Franc, a globally recognised investment platform, to make saving and investing easy for South Africans. Paymenow’s salary-linked savings feature allows users to save money directly from their available earned wage balance into a Franc-powered interest-bearing Allan Gray Money Market fund. This great new benefit is available to all Paymenow users.
While South Africa’s culture of saving is unlikely to undergo a sharp change in the short-term, an interesting glimmer of hope has emerged through recent research from Nedbank into our saving habits. The research showed that “68% of young adults are now saving on a monthly basis, with an additional 7% saving weekly.” Young people are also more open to direct investments in stocks, cryptocurrencies, and other financial instruments.
“However,” the Nedbank researchers found, “a full 78% of survey participants expressed a desire for more comprehensive knowledge on ways to grow their money.” Improving financial literacy is a core component of Paymenow’s platform. An innovative, gamified platform encourages learning and adopting better financial habits, including savings.
“Saving is a lifelong journey that rewards us not only with access to funds, but with sharply enhanced peace of mind and mental wellness,” says Neethling. “Living life without a safety net is stressful and too often leads to a spiralling series of imperfect choices. Having access to earned wages, and to a platform that encourages, enables and rewards saving, is a beneficial first step on this lifelong journey.”