How you can save South Africa



Mbulelo Musa, a Wealth Advisor at BayHill Capital

Increasing the savings rate can secure a better future

GDP figures signaling better than hoped for economic growth in 2017 brought sighs of relief all round after an unquestionably tough year financially for South Africans. But Mbulelo Musa, a Wealth Advisor at BayHill Capital, cautions that this growth is not nearly enough, and the time has come for us all to play our part in breathing life back into the economy in 2018 through a simple yet powerful tool – savings.

According to World Bank statistics, South Africa’s population grew by 1.6% in 2016, far outstripping GDP growth of 0.3% and abysmally short of the 5.4% targeted by the National Development Plan (NDP) for driving back poverty and inequality. And while 2017 figures were slightly more positive, South Africa’s economy is still expected to have grown around only 1% last year.

“An economy that grows more slowly than the people it supports is unsustainable. Quite simply this is a recipe for disaster,” he warns.

He notes, however, that a culture of saving has been a significant contributor to economic success in other countries such as China, whose gross savings rate is nearly 50% of GDP, enabling further investment in businesses and infrastructure.

“Take India as another example – it is a culture of household savings that has been the bedrock of their economy. A recent Goldman Sachs report even predicted that in a few years from now, India will not require a single dollar of foreign investment to fund its infrastructural improvements, thanks to a household savings rate which was as high as 39% of its GDP at the end of 2016.”

By contrast, South Africa’s household savings rate as measured at the end of September 2017 was a pitiful 1.6% of GDP. This is despite the fact that the average South African’s income, or GDP per capita, is three times higher than in India.

Additionally, South Africa’s household debt as a percentage of disposable income is currently a shocking 72.5%, which means that for every rand earned, nearly three quarters is spent on debt.

“It’s an unavoidable truth that ours is a consumerist society which values a pleasure-seeking way of life funded by debt, with a growing number of people from all walks of life living beyond their means.”

“This is compounded by problems such as a high dependency ratio, with breadwinners having to support a large number of family members on a limited income, persistent unemployment, a rising tax burden, high costs of living and a lack of confidence in the future.”

Musa states that a key reason for South Africa’s growing credit addiction is low levels of financial literacy, especially among the youth, calling for greater financial education interventions.

“In terms of a person’s lifecycle, economic theory teaches us that the young tend to save less and spend more. Given that South Africa has a relatively young population, it is hardly surprising then that we increasingly see people relying on credit to provide for themselves and their families.”

“To break the cycle of generational debt and the low savings culture in South Africa, it is imperative that financial literacy be entrenched from as young an age as possible, encouraging people to save more and spend less.”

Simple tips to begin saving

Against this alarming portrait of South Africa’s chronic debt problem, Musa offers a few basic tips for individuals looking to up their savings and improve their financial health in 2018:

  • Differentiate between your wants and needs: Once you have learnt to cut out unnecessary spending by distinguishing between wants and needs, you will find that you are able to save substantially more each month.
  • Focus on your financial goals: Set a list of financial goals that you would like to achieve, for example clearing all your debts, planning for your retirement, creating an emergency fund or saving towards a home or car. Set deadlines to achieve these goals and pursue them rigorously.
  • Invest in life insurance: Buying life insurance is a form of investment in your family’s future, offering your dependents financial protection should the unexpected hit.
  • Pay yourself first: Paying yourself first means putting a set amount towards your savings aside as soon as you receive your salary, in order to avoid the temptation to spend.
  • Seek out professional financial advice: Too many South Africans rely on friends, family and colleagues for financial and investment advice, not realising that these tips do not take cognisance of your individual financial situation and goals. Rather seek out a Certified Financial Planner to guide you through the investment process, remembering that they are likely better equipped to teach you about the financial world and offer investment advice.