One On One

Q & A – July Savings Month

Saving money remains one of the most topical issues in South Africa for a variety of reasons, chief among them, some people claim they don’t earn enough to allow for savings while others feel they will find an ideal time to start saving. The Weekly’s Martin Makoni asked the SA Savings Institute (SASI) acting chief executive officer Gerald Mwandiambira what it takes to start saving and the importance of having July as the country’s Savings Awareness Month. Makoni also asked Mwandiambira how much an ideal saving is and the impact that saving has on people’s lives. Excerpts:

July has been designated in South Africa as the Savings Awareness Month, why is this important and what are the objectives of the campaign?

July is the month in which the SA Savings Institute has chosen to have media campaigns around publicising the need to save. We want South Africans to know how to save because we have a highly indebted nation with most South Africans spending up to 75 percent of their income servicing debt. Saving does not only give people peace of mind and control over their finances, but it also helps the economy. In countries where there are very high percentages of individual or domestic savers, it helps the economy, like China and India. So, that’s part of the reason why the SASI, since 2001, has been trying to push domestic savings up. Currently in South Africa, the biggest savers are only corporates. So, we would like to get more savings from the people. The challenge today, however, is the lack of financial literacy. I think as much as many people think and know that they need to save, they do not know how to do so. That’s where the literary element comes in terms of needing more robust consumer education, which preferably, is not linked to financial services providers who ultimately try and link these campaigns with sales.

Why is it important to save money and how much is a reasonable saving?

Look, we need to save because all of us are getting older and we will retire one day. That’s the point when you are no longer able to draw an income from your employment. So, we need to sensitize people and teach them how to save. Everyone knows they need to save, but the practicality and appreciation of how to save is what a lot of people lack. Even if you give someone a savings solution, they do not have an appreciation of how it works. So, we have a situation now where we have a lot of savings solutions in the country but people don’t have an appreciation of how they work and how they can fit them into their normal lives. As for how much one should save in their lifetime, basically 20 percent of your income should be saved from the day you start working so that when you retire, you retire comfortably. And that 20 percent doesn’t need to be cash, it can be in the form of a pension provident fund, it can be in the form of a bond payment which appreciates. But in total, 20 percent of your income should go towards achieving relief value at the point of retirement. You will never go wrong with that figure of 20 percent even if you are going to start saving tomorrow. And the reason why it’s a percent is that it’s relative, so it doesn’t matter how much you earn.

So, at what point in life should one start saving and can one really create tangible wealth from that?

If you look at other cultures, they start saving from birth. Children are given presents of bank accounts and birthdays become opportunities to top up their investments or bank accounts. That’s how early we should start saving. By the time we reach adulthood we should already be having savings in our names or we should be aware of what really has been saved. Starting when you start working is already too late in most instances. So, we need to teach our children the principles of saving and how money works so that when the time comes, they can easily take over the instruments you have led the child with from birth.

Is it possible for someone who is not employed to save money, and how can they go about it?

Look, if you don’t have an income, you can’t save, and that’s the reality for a lot of South Africans. Unfortunately, you can’t save if you don’t have a regular income. You can save only when you receive a regular income. It’s actually unfair to expect some who is unemployed to be making any savings because they are trying to survive.

At least 52.4 percent of the youths aged 15-34 years old are unemployed, this means they have to rely on their families for basic upkeep. This obviously places a heavy burden on the family members that are working, how can such people start saving meaningfully?

It’s a reality that many households have unemployed people and the best I can say to the breadwinners in those families is to try and find a solution which will allow people to start having incomes. They may need to start small projects such as raising livestock, keeping chickens or growing vegetables. Basically, you would rather spend the little money that the family has in buying the inputs you need to start some small project and empowering those who are unemployed to try and generate income or increase the money which is available from that. This is something that is quite possible. I think simply paying and supporting people who are consuming is a vicious cycle. It will never end. You need to start finding those small solutions. Others will start a spaza or something small. We need to also start teaching the youth that unemployment is not the end of the world. There is entrepreneurship and many other ways in which they can create their own income. And once that income is there, you can teach them further, how to save.

What is the theme for this year’s savings campaign?

Our theme for this year is “#crazywaystosave.” And with the support of ABSA Bank, we are giving away R1 000 everyday during the month of July. All you need to do is post a video on our Twitter handle which is @SASIsavings or on the hashtag #crazywaystosave or on the SASI Facebook page. Put a 30 second video explaining your methods of saving and there is a high chance of you being one of the winners of that R1 000 everyday this month. So far I haven’t seen any video and we are already four days into July. The idea is to allow people to realise how much they can save. Someone earning less than you can show you that it’s possible to save.

Do you think people in South Africa are well informed on the importance of saving money and what could be done to improve awareness?

I think that’s why the Savings Month is there. It’s a media campaign through which we seek to improve the level of awareness on savings. In most cases, people are not aware about how other people are saving money. This is because in most cases, people internalise money. Very few people are open with their families or even their friends about money and that’s one of the reasons we have such a poor understanding of how money works or how to save. Even those who are successful… they keep it a secret. But we are saying, let’s share our experiences and help others through what we know.

Statistics from Trade Economics indicate that South Africa’s household saving rate dropped from 0.4 percent to 0.2 percent in the third quarter of last year, could this be due to lack of disposable income or lack of information on the importance of saving?

I think it’s mainly because the economy is not doing well. People are getting unemployed, people are getting retrenched. So, it’s getting harder for some people to save because they don’t have an income. So, that’s why the savings are probably owing because the economy is not growing.

If households fail to save, what are the chances of the children raised in such families being able to practice a culture of saving, can this be learnt in school?

Money learning should start at home. Parents should be the ones who teach children how to save, not schools. The best schools can do is to reinforce learnings from the household. As a parent you should be able to tell your child the importance of saving before spending. Your behavior with money as an adult is probably a direct result of what you grew up with. So, until someone can intervene and teach you or get you to understand how to do it properly, you will repeat the same mistakes of your parents.

How does the ability to save or the failure to do so impact on people psychologically?

I think it’s about self esteem. People who save and are in control of their finances, tend to have a higher self esteem, tend to be more confident in life and make better decisions. And with no savings, you tend to have a lower self esteem, you tend to follow the crowd and you will be less confident. That is why you find people who save, tend to have similar types of friends and belong to similar social networks. They also tend to succeed in life compared to those who do not save.

You are an author with three published books on financial planning, and you are a financial planner by profession, among other things, what exactly do you do and who can come to you for assistance?

Yes, I have two published books on personal finance and one on entrepreneurship. I run a wealth planning planning business and I am an advocate for consumer education, especially in the financial area. I am passionate about getting people to understand how money works and for black people, especially, to realise that we can create wealth but we need to give it time and also to take advantage of the opportunities and solutions that are out there which may be publicised as much as they should be. When I do consumer education, I talk to everyone. The bottom line is we want to assist people to manage money so they can have realise an income.