A small step now will change everything

HEALTHIER savings habits will radically alter South Africa’s economic future and help change the predicaments of the thousands of people mired in spiralling debt burdens every month.

User-friendly mobile wallet solutions and tax-free savings accounts are two of the most recent examples of how technology, the industry and policymakers can combine to provide platforms that can facilitate the tangible change that is so desperately needed.

South Africa’s poor savings rate has become more and more entrenched and all stakeholders are right to be very worried about the future if it continues in this vein.

Simply put, if something is not done about it the economy will remain fragile and jobs elusive.

World Bank Statistics between 2010 and 2014 paint a poor picture of the growing tendency of South Africans to consume rather than save.

It shows that the savings rate has been going in the wrong direction for a long time – it declined from 18% to 17%, to 15% and then to 14% over the period.

Brics peer country the Russian Federation, by contrast, improved savings levels from 27% of GDP to 30% between 2010-11, before dropping to 28% and then to 24% by the beginning of 2014.

China has maintained its savings rate at just over 50% throughout, while India boasts a savings rate of 32%.

A healthy pool of savings is the glue that holds the entire financial system together, offering opportunities for lenders to earn interest and borrowers to put the money to good use.

This in turn feeds back in to the system via more savings, growth and jobs. Savings are real and tangible investments and not subject to the whims of investors with short-term horizons, who are as quick to withdraw money from the system as they are in chasing a quick buck.

What is becoming abundantly clear is that a mindset shift is needed if South Africans are going to put money away for longer-term purposes.

There needs to be a conscious choice to do it. While this will not happen overnight, time is running out fast.

Yet the savings that can be achieved over time by adopting the right mindset are enormous.

They are enough to put children through the best universities, to pay off a house and certainly to eliminate debt.

All that is required is for that first step to be taken.

The new tax-free savings account, for example, will see an annual contribution of R30000 now grow into R819804.93 in just 17 years.

Even smaller amounts can lead to large rewards in 17 years – just R500 a month now will grow to R163624.93 and R2500 a month would be worth R819 804.93.

The government enabled financial service providers to offer tax-free savings and investment accounts from 1 March 2015 and you can contribute up to R30 000 a year or R500 000 in a lifetime. Returns (interest, dividends, capital gains or earnings) on such products are tax free.)

This change is really a step in the right direction – but it is not the only recent change that can make a significant difference. Savers often forget that when they get a step-change in income or pay off that last car instalment, it is an ideal time to start locking that money away rather than simply adjusting lifestyles and spending.

Technology is also making big leaps. Savers no longer need to go in to bank branches as they can just click on the internet or use their mobile apps to access new online savings tools.

They can open accounts in a few minutes this way too.

There is a continuous focus by the industry to make things simpler via mobile apps and technology.

Young people face immediate challenges to putting money away, but easier-to-access tools will make it easier for them to get started. And that’s all it takes – a start of just a few hundred rand can really deliver surprisingly large paybacks down the line.

Let’s face it – we all spend so much on things we don’t really need, like that second or third cup of coffee at the corner coffee shop, or a “comfort” purchase that isn’t really needed, but is done on the spur of the moment.

Now, at the click of a button on their mobile device the money that would have been spent can rather be transferred into a savings account, where it can compound over time.

Simple changes like this will eventually revolutionise the savings culture in South Africa.

I don’t think anyone can argue that change is desperately needed. But never before have there been so many simple ways to get saving.

The South African economy will be a different place indeed in just 10 years if a savings culture shift takes place now. All it needs is that first step.

Nolene Parboo is a senior savings and investments manager at Standard Bank