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.