South Africans Ignore Calls to Save for a Rainy Day
Building your savings is all about regularly putting away part of your income into a low or no-risk account. Your money is guaranteed to earn a specific amount of interest, and the original deposit is safe. To save it makes sense to say that you need to spend less than you earn. A rainy day is a symbol of gloom, and to save for a rainy day would require put funds away to tide you over when hard times come.
South Africa fares poorly on both growth and savings when compared to other developing countries. South Africa’s saving rate is 15.4%, one of the worst in the world. At the end of 2015, the household saving rate was -2.4%. Most people are forced to spend their income on necessities, and try not to think too much of the rainy day. Not saving, though, also hampers the economic growth of a country.
How Bank Savings Work
- Households put their savings into banks, and the banks lend that money to local companies, which in turn invest it in a productive capacity. The trend then fuels growth, which will increase household income, and so the circle will begin again. This wheel needs to be continually turning.
- Less money in the banks means the country cannot finance the infrastructure, such as roads, ports, broadband Internet, and other things necessary to move the economy up a notch.
- If there are no savings to finance investments, then the government will have to go out of South Africa to borrow on international capital markets.
South Africa needs to boost its domestic savings rate, so that institutions can invest more in the local companies, instead of relying on borrowing money from external markets.
The past and present Financial Ministers have begged the more than 50 billion South Africans to save more. But people would rather spend their income on the latest TV or smartphone.
If and when people save for a rainy day, these are their priorities –
- 43% save for a rainy day, whenever that might be
- 37% for retirement, in pension funds and retirement annuities
- 37% for funeral expenses
- 22% for education
- 18% to pay off debt
- 16% for home improvements
- 13% for a vehicle
Many black South Africans invest in a simple saving scheme known as a stokvel. A stokvel consists mostly of women; a group comes together to pool their savings – an agreed amount of between R100 and R1,000. They take turns to take home the entire amount.
A stokvel is a convenient way for the poor to buy a bit of luxury now and then. Stokvels, are currently worth about R40 billion but unfortunately this money hardly ever finds its way into the formal financial system, denying the economy access to the funds.
Some of the Reasons One Can’t Save
- Higher interest rates mean a higher level of debt that needs to be repaid.
- The disposable household income grows below inflation
- SARS estimates that only 2 million people in South Africa earn over R250,000 a year
- Rising inflation
- Sharply rising electrical and municipal rates
- The sliding Rand
- The high petrol price and rising good prices
Educate yourself about saving and try to save any extra money you get in such forms as tax rebates, gifts or bonuses. And if you can spare some cash, why not see a professional for financial advice on how to save in very difficult times.
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