Short term impact on South African's savings habits

By Staff Writer
The enormous financial pressure experienced by South Africans over the last few years has resulted in an increasing number of people deviating from their long term savings goals, putting themselves and their futures at risk. It is hardly surprising that market research is uncovering a looming social disaster.

The 2010 Old Mutual Savings Monitor, published earlier this year found that 80% of South Africans are saving the same or less than they were a year ago, while recently published research by Sanlam has confirmed that the vast majority of consumers will retire without the capital to sustain even a moderate lifestyle, and many will in reality be destitute without family support..

The Association for Savings and Investment South Africa (ASISA) recently announced it was creating a high level "think tank" to help find a practical solution to improve South Africa's worrying savings rate, following figures published by the Reserve Bank that showed the household savings rate in South Africa - expressed as a percentage of GDP - was just 1.5% in 2009.

According to Chris Busschau, Chairman of the Financial Planning Executive Committee of the Financial Intermediaries Association of South Africa (FIA), one of the most common financial errors that consumers make is that of short-termism. "Consumers often focus their thinking on the short term rather than the longer term picture. As a result, their immediate wants or needs tend to take priority over provision for the future."

Busschau says this is often evident in people cashing in their retirement policies in order to fund purchases such as home improvements, a new car or even luxuries such as holidays.

"We are noticing that funds are still being channelled away from investments to meet immediate cash needs. Most investors also continue to have a low exposure to equities because they are 'scared‘ of the market, yet in reality this is actually a good time to be buying products that are linked to shares in well run companies. Often one of the best times to pick up good investments is when everyone else is short of cash and not buying, which still seems to be the case at the moment."

He says it is crucial that consumers start to make themselves aware of their true savings requirements. "It is important that people start taking their financial commitments seriously and have an overall financial plan in place that addresses both their short and long term needs. If they don't do this, then what may be classed as poor savings habits now can prove to be disastrous a few years down the line."

Busschau says critical to this process is employing the services of a financial adviser, who can make recommendations based on someone's personal circumstances and steer them in the right direction in terms of meeting their financial goals. "Financial planners can help people to devise a financial plan, and make sure that clients not only adhere to that plan but also help them to get back on track if they do deviate. Many people have been tempted to disregard well formulated plans and employing a skilled financial planner is like using a personal trainer to keep you on track with a fitness program!"

Busschau says it is important consumers bear in mind that even if they are struggling financially, they should not put themselves at any further undue risk by cancelling short or long term insurance policies or by ‘buying down' on their health insurance or medical aid cover.

Recent Articles

Featured Should you trust your tax practitioner?

You hand over the burden of filing your taxes to your trusted tax practitioner. But who is responsible if there are errors in your tax return?

Your medical aid could be terminated – this is how

If you’re completely honest with your medical aid provider, you may be excluded from certain benefits. We find out what happens when you’re dishonest in order to avoid these restrictions.

Insurance fraud: Syndicates, opportunists, and murderers

We take out insurance to protect ourselves and our loved ones from unforeseen circumstances. But some try to take advantage of the insurance system. We have a look at what insurance fraud is.

Keeping your money safe when travelling overseas

Whether it’s for business or leisure, overseas travel offers you the opportunity to see and experience more of the world. However, it does come with risks, and financial fraud is not the least among them.

Deals

Senior Citizens Discount at Marriott Hotels

Price: Available on request
When: Daily
Where: Worldwide

Happy Days Special at Crystal Rose Spa

Price: R550
When: Until 22 January 2022
Where: Krugersdorp

Clos Malverne Sauvignon Blanc Brut Deal

Price: R634
When: While stocks last
Where: Stellenbosch


Latest Guide

Guide to debt rehabilitation solutions