An overview of the 2016 Old Mutual Savings and Investment Monitor
15 August 2016
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On mobile, on digital, on demand, this is Old Mutual Live, the Money Coach edition. Hello and welcome, my name is Chris Gibbons and with joining me now from Old Mutual in Johannesburg is Lynette Nicolson, Research Manager at Old Mutual. Lynette, welcome, good to have you with us.
Lynette Nicolson: Morning Chris, nice to be here.
CG: The focus on this edition of Old Mutual Live Money Coach, the recently released 2016 Old Mutual Savings and Investment Monitor, one of the most in depth studies on how, where and why South Africans save. Lynette, let’s start if we can with a broad overview of SIM 2016, what are the key findings?
LN: Right Chris, I think first and foremost and we anticipated this, was that South Africans are really feeling the financial pinch at the moment. Debt is up, and I’m sure we’ll talk a little bit about that. So more money going to servicing debt, people taking out more personal loans, being people being less satisfied about their financial situation. But they’re also, at the same time, even amongst that doom and gloom, households are kind of seriously having to look at what is happening to their finances and where they can cut back.
What’s changed in the past year?
CG: What has changed from last year’s survey?
LN: What has changed? Well, people are less happy with their situation. As I said, more personal loans and then also quite a big increase in people putting money into informal savings vehicles. Which we can chat about a bit later. Then also fewer people putting money into pension and provident funds.
CG: This is against a very tough economic background?
LN: Correct, absolutely. What we always do is look at the time that we do the research, which is round about March/April of every year. We look at what was going on economically, not to go into all the macro-economic indicators in too much detail. But certainly year on year interest rates were up. Consumer confidence was down, business confidence was down, unemployment was up, so yes, rather a dismal picture.
CG: How do people feel about all of this? Surely they’re not happy with where they are financially?
LN: No, they’re not, absolutely they’re not, I don’t think any of us would be, or are. But as I said, trying to cut back where they can and make do with what they have.
Are people still managing to save?
CG: How difficult is it to save under these circumstances? In fact, are people still saving?
LN: Yes, I think definitely they are and especially if you look at what our definition of savings is. Our definition is putting money away into any types of policies, accounts and also informal savings. People are doing that and of course there are going to be those who cannot and we need to consider that.
Some people just don’t have the ability to save. But I think very important is that when it comes to, we all say how can we save? We earn such a little, how can we save, expenses are high, but actually it’s also around a mind-set and a willingness to save. Yes, to answer your question, people are still saving, there are those that are diligently putting money away into pension funds, retirement annuities and so on.
CG: Are people becoming more aware of the need to save?
LN: One would hope so and I think, you know, our results don’t point directly to an answer to that question. But I will hazard an opinion on that. I think there are pockets, yes, not everyone, but I think there are people that do realise how important it is to save. I think we just need that sentiment to become much more prevalent, especially amongst our young people who have time on their side.
What are popular saving mechanisms?
CG: Those who are managing to save something each month, which vehicles are they using?
LN: So, the most popular vehicle is funeral policies and some people would say to us, is that a saving and yes it is. It’s a precautionary saving, we call it a precautionary saving. Funeral policies are really the highest or the most prevalent saving vehicle, followed by pension and provident funds Although, having said that, our survey is done amongst working metropolitan people and only around 54% of them are putting money into pension or provident funds. So that’s a bit of a sad situation.
Retirement annuities as a whole, across the population is around about 25%, obviously that increases with income. Bank cash savings, there’s some of that. But our informal savings vehicles and there are four of them in the bucket, are really reaching the highest percentage amongst our black households, which is around 76%.
CG: You’re listening to Old Mutual Live, the Money Coach edition on demand, visit dogreatthings.co.za, I’m talking to Old Mutual Research Manager, Lynette Nicolson. Lynette, how vulnerable are consumers to calamity or unforeseen expenses? Are they coping?
LN: Well, one of the questions we pose is how, in the last year, have you ever had the situation where your income does not cover your expenses. We’ve got around a 57, let’s round it off to 60% of people saying yes, that has happened to me. Then they have to find ways to cope with that. That’s on the one side.
We also then do ask people, how would you be able to cover an unexpected expense of R1 000, R5 000 and obviously it’s all relative to income. We increase that as we ask and it’s amazing how many people, even earning relatively good salaries would not be able to cover an emergency expense of say R1 000 or R5 000. They have to look at ways of, not being able to cover it meaning they don’t have money in the bank to cover it. They’d have to look at other ways.
Where are people cutting and not cutting back?
CG: Are people cutting back and if so, where? What are the things that are not being cut back? What are the coping strategies?
LN: So not cutting back, I think they are probably some of the obvious ones, accommodation is the lowest on our list where people say they’re cutting back. Obviously where you can perhaps, you may do that, but accommodation is less easy to cut back on.
Then we have things like insurance, but short term insurance. So that is also people, there are people cutting back, but that’s kind of on the lower end. We have also armed response, is one of the lower ones, so less so than people saying I’m cutting back on entertainment or holidays.
CG: Are loans increasing and if so, what kind of loans and what are the implications?
LN: On loans, we look at personal loans in particular. Our survey does cover all the debt categories. But in terms of personal loans where we focused this year, person loans from a financial institution, personal loans from a micro-lender and personal loans from a family or friend; are all types of personal loans that have seen an increase year on year. In terms of some more people are taking them out or having to rely on them.
CG: Lynette, time nearly up, sum it up for me, what are the implications of all of this for our nation going forward?
LN: Well, I think we’re almost a little bit like a stuck record every year, save, save, save. Do it as early as possible, don’t leave it too late. Also what we have, a saying that we say: Pay yourself first. When that salary comes in, don’t wait until the end to see what’s left over to save. Make saving an expense.
CG: This has been another edition of Old Mutual Live Money Coach, my name is Chris Gibbons and with me on the line from Johannesburg has been Lynette Nicolson, Research Manager at Old Mutual. Lynette, thanks for having been with us.
Remember, please free to get in touch any time if you have any questions for me or topics you would like covered on Old Mutual Live Money Coach, just feel free to send them direct to me at email@example.com. I would be delight to hear from you. Until the next time, thank you for listening. Old Mutual Live, on mobile, on digital, on demand.