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South Africa's savings crisis

         Date: 2012-07-24

           Tag: South Africa, South Africa crisis

Summary: JOHANNESBURG - Only one in ten working metro households are satisfied with their financial position. This is according to the sixth Old Mutual Savings and Investments Monitor, released on Monday.

JOHANNESBURG - Only one in ten working metro households are satisfied with their financial position. This is according to the sixth Old Mutual Savings and Investments Monitor, released on Monday. The monitor examines the financial attitudes and habits of working South Africans twice a year.

The effects of the recession are still being felt and South Africans are cutting costs and employing expense control to try and cope, the monitor shows.

In the survey 37% of respondents said they were now saving less than a year ago. When the vehicles used for saving and investment are analysed, it is clear that the respondents are relying more and more on informal savings vehicles, such as stokvels, grocery schemes, burial societies and putting money under the mattress.

While the percentage of respondents using these savings vehicles was at 38% in November last year, it has now increased to 51%.

Lynette Nicholson, chief researcher, said that there seems to be some type of realisation that people will have to rely on post-retirement employment to fund their retirement years. The respondents indicated that they believe 14% of their retirement funding will come from post-retirement employment, up from 3% in 2010.

Overall, the respondents still believe that more than a third of retirement funding will come from a pension or provident fund, which is worrying considering that 44% of the respondents do not have a pension plan or a retirement annuity at all.

Nicholson also highlighted that some respondents believe that the value of their primary residence will be a retirement funding mechanism.

The percentage has increased from 5% to 14% since the last monitor six months ago. If this is a trend, it might be a problematic one as very few of the people who indicated that they will use the value of their home, have already paid off their mortgage.

Nicholson said that for the first time, the monitor shows that there is a jump in the percentage of respondents who believe their children will look after them - the percentage is now at 40%. A total of 38% believe government will take care of them, clearly indicating that dependency levels are increasing even as economic conditions worsen.

A shocking figure from the monitor is that 56% of working metro women are single mothers, with only half of them receiving some financial support from their children’s fathers. Only 21% receive regular financial support.

Single mothers are saving for education, informal savings and for funeral policies, sacrificing their long-term savings such as retirement annuities, Nicholson said.

The monitor concurs with some of the latest findings from other institutions, such as the National Credit Regulator, that personal unsecured loans are on the increase with 16% of respondents saying that they have a personal loan, up from 11%. According to Nicholson this is more prevalent among those in the middle-income group.

Even with interest rates at 30-year record lows, the percentage of people paying off only the minimum amount required on their debts is increasing.

Rian le Roux, Old Mutual economist, told a media briefing that South Africa's saving performance needs to improve to ensure economic growth.

The country has a significant gap between investment as a percentage of GDP and national savings as a percentage of GDP.

According to Le Roux, if the country saves too little, households don't have enough for retirement, companies can't expand and the government won't have enough for physical or social infrastructure. This means that South Africa will rely heavily on foreigners for funding.

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