July may have been National Savings Month, but with the consumer debt at its current levels of nearly 80% of disposable income, consumers need to pay off their expensive debt before they start saving.
Luke Hirst, MD of debt experts DebtBusters says "It is never too late to start saving. Paying off your bond quicker is in itself a great way of saving. Adopting a budget and saving discipline each month will help you manage your money more effectively and consumers will soon see the savings.'
Hirst goes on to say that "whilst there are tax incentives for savings vehicles, such as retail bonds and retirement annuities, their returns are often small in comparison to paying off unsecured debt like credit cards and store cards, which attract interest and charges of over 25%."
There are signs that consumers worldwide are changing their habits, and paying off debt and saving more. This is accentuated in countries like the UK where interest rates have been drastically lowered to 0.5%. In the UK, over 100 million rands of consumer capital mortgage debt was paid off in 2009, whereas in South Africa it was a negligible amount. Hirst says "interest rates need to be reduced by another 2% to enable consumers to start seriously reducing their debt levels."
MasterCard recently performed a survey that showed that 45% of consumers plan to decrease their discretionary spending over the next six months, while 65% of consumer expect to save either more or as much as they had in the previous six months. In order to have a financially stable retirement SA consumers need to start putting this into action now.