More South Africans are struggling with debt and cutting back on saving towards their children’s future education.
This is one of the key findings of the recent 2013 Old Mutual Savings and Investment Monitor, which surveys the savings and investment behaviour of working metropolitan households.
Raymond Berelowitz, director of marketing, communications, corporate affairs and product solutions at Old Mutual, said the number of respondents cutting back on expenses has nearly doubled in the last two years, rising to 72% in 2013 from 38% in July 2011.
Less people saving for the their kids’ education
Berelowitz added that he was concerned about the percentage of respondents making use of education policies which decreased dramatically in just a year from 31% in 2012 to 19% in 2013.
He said the percentage of parents with dependent children, who are saving for their children’s education, has decreased each year for the last four years – from 55% of respondents in 2010 to 40% in 2013.
“The 2013 result also marks a significant drop from 2012, when approximately 50% of the respondents with dependent children indicated that they were saving for their children’s education,” said Berelowitz.
The survey also found that the drop in saving for education was apparent across all income levels. This is worrisome when coupled with the fact that 38% of respondents had neither a retirement annuity nor a pension or provident fund in place.
The survey revealed that almost 40% of respondents said they would rely o-n their children to take care of them financially in their old age. This figure is up from 26% in 2010. Among people earning less than R 6 000 per month, this figure is even higher: 51%.
Luke Hirst from DebtBusters said the declining trend of saving for education was because people generally had less money to save.
What are the long-term ramifications?
Berelowitz said the long-term impact of this is a perpetual cycle of generational poverty, as breadwinners who are caring for their parents will be hard-pressed to save for their children’s education let alone their own retirement.
The most popular savings vehicles for those that do save are funeral policies (65%), pension or provident funds (56%) and informal savings vehicles such as stokvels (49%) overall, but 65% among black households.
In terms of what people are saving for, the research found that 39% of respondents are saving for emergency expenses, 37% for retirement and 30% for funeral expenses.
Debt crisis
62% of respondents indicated that they had at least one store card, while 29% said they had at least o¬ne credit card. A further 17% of respondents had a personal loan from a financial institution.
“Debt is affecting people from all income brackets because the rising cost of living is increasing. Over the last few years there has been an increase in people who use debt to pay their expenses,” said Hirst.
The vast majority (55%) of respondents who had a credit card pay only the minimal instalment each month and o¬nly 13% choose to pay in full at the end of each month.
Similar behaviour was revealed with the repayment of store card debts and personal loans. The data showed that many respondents (72% and 82% respectively), choose to pay o¬nly the minimum instalment at the end of the month.
“The longer consumers remain tied to short-term debt and its high interest rates, the longer it will be before they can allocate money to long-term savings that build wealth,” said Berelowitz.