The Poor State of the Nation’s Pockets: it’s always darkest right before dawn
Johannesburg - South Africa is infamous for the worst savings rates in the world, with a multitude of surveys telling us it is difficult to save when you can't make ends meet and are struggling to pay off debt. But is this the full picture – and more importantly, is there anything consumers could be doing differently, given a slightly improved outlook?
"After years of unrelenting financial pressure, our customers have had to become financially disciplined and resourceful. This will make it easier for them to get back on their feet when things start to improve, helped by the drop in fuel prices and what we hope is the first of several interest rate decreases beginning later this week, " says TymeBank Chief Commercial Officer Cheslyn Jacobs.
With just under 10 million customers and a base that includes everyone from SRD grant recipients to middle-class consumers and affluent savers, TymeBank has been gathering customer feedback and data over the past three months to get more insight into consumers' financial circumstances, including their spending and savings behaviour. As is the case nationally, the inadequacy of retirement savings among TymeBank customers is cause for concern, with only 10.3% of respondents indicating they are saving towards retirement, regardless of income or age.
"This is extremely worrying. Even those who contribute to retirement funds should think carefully about dipping into their retirement money by taking advantage of the two-pot retirement system, particularly if you are over 40," he says.
What consumers are doing to make ends meet
"Customers across the income spectrum are telling us they have resorted to a variety of measures to stay afloat, with less than 5% of those polled reporting little to no change in lifestyles despite the significant rise in living costs," he says.
Besides cutting back on expenses wherever they can, TymeBank customers have been cashing in their savings, turning to friends and family for financial assistance, and starting side-hustles, while just under 14% said they had taken out personal loans, turning equally to banks and microlenders. "What is always worrying is the number of people who are borrowing from informal lenders. Although just under 7% of respondents we polled say they have gone this route, we know that national estimates are considerably higher," says Jacobs.
"While micro-lenders have a role to play, there are many unscrupulous loan sharks charging exorbitant interest rates, so choosing a reputable lender should always be the preferred option, provided you have a good track record," he says.
Low-income earners (women) spend at least two thirds of their income on groceries and essentials
According to Jacobs, insights from TymeBank's base confirm just how financially vulnerable South African women are. "For example, in Women's Month we polled a group of women, most of them single parents and breadwinners with a monthly income of between R1000 and R5000. They reported spending at least two thirds of their income on groceries and essentials, with as much as 20% of their money going to childcare and related expenses.
"Interestingly, our data shows that 55% of our savings customers, regardless of income, are female, which confirms the notion that despite being financially disadvantaged, women are better savers. Among the women who are saving, a third are putting money aside for their children's education, while 23% are doing so for personal financial security.
"More generally, we have seen the number of customers with savings accounts increasing by 35% over the past year. One in-four persistently active* customers have a savings account, with the largest number of savings account holders aged between 26 and 35," says Jacobs.
Short- vs. long-term savings goals
An analysis of TymeBank's data shows that users of GoalSave, a flexible savings product, tend to be 'short-term savers,' with 90% withdrawing their funds within two months of opening their accounts. The remaining 10% of customers, who have higher balances, tend to hold on to their deposits for considerably longer periods, some spanning multiple years.
"The data also shows that while customers have limited funds available to them, they are wisely choosing high-interest products to make the most of their money. If you consider that 65% of respondents told us they saved less than R5 000 in the preceding 12 months, what we are seeing is that regardless of income, consumers are hustling to make their money work for them," says Jacobs.
"Of course you should always be aiming for the highest returns, but the golden rule is not to put all your eggs in one basket. Ideally you want money in a flexible savings account in case of emergencies while you build up a nest egg in a fixed deposit account that pays high interest rates. Fortunately, GoalSave has the best of both, enabling customers to earn up to 11% interest and allowing partial withdrawals" he says.
"We are seeing encouraging trends among those who are saving, with just under a quarter of people we polled reported saving a fixed percentage of their income every month. This is the kind of savings discipline that all South Africans should be aiming towards," he says.
Small businesses are also feeling the pain
Insights gleaned from TymeBank's business customers shows they are also feeling the pain, with 36% of the SMMEs surveyed indicating they had not saved any money in the past year, while just under 27% had saved between 1% and 5% of their income.
"Those with small businesses that are less than five years old have been struggling for some time. The impact of the pandemic was acutely felt; more recently factors such as loadshedding, water shortages, and high fuel prices have made it extremely difficult for many to stay afloat, says Jacobs.
SMMEs currently account for 60% of all jobs. By 2030, this figure is expected to increase to 90%, according to the Government's National Development Plan.
"Given their critical role in the economy, it is disheartening to see how many SMMEs are battling, but what we do know about this segment is that they are resourceful and resilient.
"Despite the drop in fuel prices and the small interest rate cut expected on 19 September, caution is required. Small business owners still need to keep costs as low as they can, and rather put any spare cash into a savings tool to build up a financial buffer," comments Jacobs.
*Persistently active customers are those with a 90-day active rate.
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