How the average South African family is coping
17 August 2016
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Chris Gibbons: On mobile, on digital, on demand, this is Old Mutual Live, the Money Coach edition. Hello and welcome, my name is Chris Gibbons. 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.
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. So, where are we now?
Let’s take a look at the average South African family, a look in the mirror, if you will. Old Mutual surveyed 1 000 working South Africans across all income groups. But Lynette, I gather this was in five main bands or income brackets, how did it break down?
Why looking at household income is important
LN: Yes, so we start at anyone at R1 000 per month income, and we go right up R1 000 plus. We do divide it into different categories, which makes sense to our business and to the broader economy. Anyone earning R1 000-R5 000 a month, then anyone earning R5 000 to R12 000, then R12 000 to R20 000, then R20 000 to R40 000 and then R40 000 plus.
CG: The questions you ask relate to household income, not personal income, why is that?
LN: We do, just because our belief is that anything to do with savings, particularly, tends to start at a household level where there is a household, absolutely. Right in the beginning of the study when we spoke to UNISA, they advised us to rather look at the household income. What we do do, however, is we do also ask personal income, so the results can be broken down by personal income as well.
CG: What does the average South African household in fact look like?
LN: The average household, well, the census figures also corroborate what we found in our data. They came out recently, the community centre figures, 2016. I know this might sound a bit small, but the average household is four people, round about 4 to 4.5 people, that’s average. That would change dramatically according to province or area or income.
What is the boomerang generation?
CG: Quite a few people still living at home with parents, including quite a few who have boomeranged, I believe that’s the phrase?
LN: Yes, boomeranged. Let me explain that. Boomerang or the boomerang generation are those kids, obviously older kids who have moved out of home for whatever reason, because they want to move away from their parents.
Then decided, or not decided, but actually found out that maybe the grass isn’t that green on the other side and they’ve come back home for various reasons. That average is around 18% at the moment. So that’s 18% of those that have moved out, have moved back.
CG: Over the past two years you’ve also asked a specific question about single mothers. Why, and what did you find?
LN: I think Chris because single mothers are such an important sector/segment of our population and astoundingly, of all the moms that we interviewed in the major metropolitan areas, working moms, remembering, around about one in two of those are single moms. Yes, it does skew towards the lower income groups, but it’s not insignificant as we move up the income scale.
The so called Sandwich generation
CG: Included in all of this is what’s known as the sandwich generation, what’s that about?
LN: Sandwich generation, it’s actually a global phenomenon, not only South African. It’s those people that are busy working, they’re busy trying to provide for their own retirement needs, but they also have dependent children or child. On the other side, they are also providing in some way for an aging parent or family member. They are sandwiched in the middle.
CG: Okay, so now we know who we are, how do we feel, are we happy with our current financial situation Lynette?
LN: Well, the data shows that over the past 5/6 years, households are less happy, less satisfied with their financial situation and I think that’s realistic. If you think what’s happened over the last few years and increases in certain things that we have to pay for every month; municipal services, school fees, food, so people are not that happy with their financial situation.
CG: That applies even in the top income band would you say?
LN: Yes, it is, yes, absolutely it does. It is more prevalent as you move down, which is probably realistic as well, the income bands, but certainly it’s across the board.
Relationship before financial stress and debt
CG: All right, in the research you examine the relationship between levels of financial stress and debt and you find a close correlation?
LN: Definitely. So this year we brought in our financial stress indicator for the first time, it’s based on an international measure and absolutely. We correlated the two and the more debt that you’re in, the more financial stress you’re in.
CG: So how are people managing that, are they cutting back?
LN: People are cutting back. We had a special section this year about how people are changing their behaviour. It is what people say they’re doing and we hope that they are being honest with us, but people are cutting back. There are some big luxury items that people say they’re cutting back on, things like holidays, entertainment, alcohol, if they are drinking alcohol. Cigarettes if they’re smokers, so there are some big items and then some essentials as well on the other end. There’s a certain amount of cutting back on that too.
What shape are people in at the end of the month?
CG: In general, are people making it to month end or not and what happens if it’s not?
LN: We do see in the survey that there are instances where people don’t make it to month end. Their income does not cover their expenses for the month. What they do, well, the most prevalent activity or thing that they do is to ask for a loan from family or friends. Very informal, personal loans and then there would be other things, that if they did have some savings and they were lucky. They would maybe delve into that or take out a persona loan or even borrow from a stokvel.
CG: Do people look for additional work as well?
LN: That’s an interesting one. We’re seeing quite a lot of people saying they’re looking for alternative, maybe I shouldn’t say ‘alternative’, it probably is an additional working opportunity. Whether that’s somebody selling Avon or Tupperware or we even had somebody saying they’re working. But they’ve now started selling chickens and starting a chicken business. People are looking for these different ways to supplement their income.
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, in the upper income brackets, what did you find there? Are there delays in big projects or is it: Sorry, no new yacht this year darling?
How the upper crust are feeling the pinch
LN: I think interestingly, there’s delays in doing renovations or additions or whatever to your home. Also we found that people are saying they’re also delaying the purchase of a new car. What’s also quite interesting for the higher income was when we came to shopping habits.
We asked how they’ve changed, if at all, a lot of buying in bulk. Now, buying in bulk, it would make sense because the upper income people probably have a little bit more disposable income to buy in bulk. This is quite an interesting shift, but certainly, yes, holding back on big ticket items.
CG: How vulnerable are we to financial emergencies and how are we dealing with it when they arrive?
LN: Interesting as well, we are generally not that prepared for unexpected emergencies. Our households on average say, about one in two say that they think that they need less than a three-month buffer to cope with unexpected emergencies.
You can just think, when your washing machine or tumble drier or dishwasher goes on the blink, you know what that costs. Some people don’t even have that to cover. Whether it’s an unexpected expense of R1 000 or R2 000 or R5 000, they’re going to have to go into their credit card, look to friends, ask family. Quite a dire situation.
CG: Lynette, how does all of this leave people feeling about the months ahead?
LN: We have an indicator in our survey which is confidence in the South African economy. Bearing in mind the time period when this research was done. I actually didn’t believe the result when I saw it. Which is such a huge decline in people’s confidence going forward around the South African economy, which is really sad. Massive decline, but you know what? South Africans are making plans, somehow and we have to be positive.
CG: This has been another edition of Old Mutual Live Money Coach, my name is Chris Gibbons. 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. Feel free to send them direct to me at email@example.com, I would be delighted to hear from you. Until the next time, thank you for listening. Old Mutual Live, on mobile, on digital, on demand.