Consumers still don't save enough

By Staff Writer
John Loos, household and property sector strategist at First National Bank (FNB) said that while average indebtedness has come down this year, household savings is still a problem.
 
"Encouraging economic signs coming primarily from a huge drop in global oil prices, and the prospect of improved economic growth in 2015, lead us to expect that the country's household sector could continue make further slight improvements to its indebtedness situation," said Loos.
 
Household debt
 
In 2008 the average annual debt-to-disposable income ratio was 87.1%. This is how much money, on average, adults in South Africa owe to financial institutions. However, since then the household sector has gradually lowered its debt ratio to an estimated 78.4% average for 2014.
 
The Consumer Price Inflation (CPI) is expected to lower this year, and along with slightly faster economic growth, consumers could see an improvement in real disposable income growth from 1.5% in 2014 to 2.5% in 2015.
 
"We expect that the Household Sector still has room to grow its borrowing at a slower rate than nominal disposable income growth," said Loos.
 
Loos expects this to result in a lower household debt in 2016, at 77.7%.
 
Weak savings rate
 
In the third quarter of 2014 [July to September], the household net savings – the amount of savings after all deductions - was -2.3% of disposable income.
 
This implies that the levels of gross saving [the amount of all savings together] are insufficient to cover the depreciation on fixed assets, such as homes.
 
"The rate had become slightly "less negative" compared to the -2.5% all-time low reached late in 2013, but this is small reason for excitement," said Loos.
 
"The weakening savings rate has been a multi-decade trend. Various reasons have been put forward over the years, but it would appear that tougher times may be the catalyst for a higher savings rate and vice versa," said Loos.
 
Loos went on to explain that another theory for the low savings rate is that urbanisation has increased people's confidence in their ability to get another income source should they lose their current job, for instance.
 
This means that fewer people are saving every month, as they believe they are able to find another job rather easily.
 
"In short, South Africa's dismal household savings rate is not expected to show an improvement in the 2015-2016 forecasted period," said Loos.
 
For more information on handling debt in 2015, click here.
 
Housing market
 
Loos warned that one key risk to the lower household debt forecast will be the housing market. Over the past three years, the housing market has gained momentum.
 
"A stronger than expected performance by this [housing] market in the forecast period [2015-2016] can risk leading to stronger than predicted credit growth, and the resumption of an increase in the Indebtedness Ratio, we would deem undesirable," said Loos.
 
This momentum in the housing market can be attributed to lower oil prices, as well as lower global food prices.
 
From a household savings point of view, interest rates may well be low, which will encourage consumption more than saving. Even though the economic forecast for household debt looks promising, consumers are urged to save their money, and be financially healthy.
 
For more information on the housing market, click here.

Recent Articles

Featured When to trade in your old car for a new one

You may have noticed that your car isn’t running as smoothly as it used to. This is particularly concerning if you’re hoping to sell it at a reasonable price, and buy yourself a modern alternative.

3 facts to consider when cancelling your contract

If you’ve ever had a relationship end in a bit of a mess, you’ll know that some people are more difficult to break up with than others. The pain, the push back, the back and forth – it can be a difficult process.

How long does debt reflect on your credit score?

If you’ve ever had debt that you didn’t manage well, you may have wondered how long the debt would remain, or be retained, on your credit score. This is known as a “retention period” and it is governed by the law.

Deals

Full Body Massage at Dembalicious Spa

Price: R99
When: Mondays to Sundays
Where: Johannesburg

Two-Course Asian Dining for Two

Price: R269
When: Mondays to Sundays
Where: Cape Town

One-Hour Yacht Cruise with Waterfront Charters

Price: R99
When: Mondays to Sundays
Where: Cape Town


Latest Guide

Guide to debt rehabilitation solutions