Most South Africans do not save. A Finscope survey conducted in 2011 revealed that around 66% of South Africans do not save any money. The survey measures access to, and the use of, financial services. The survey also found that only 11% of South Africans save with banks, with 13% of the citizens saving through the formal non-banking sector. About 4% save informally through entities such as stokvels while a further 6% save at home.
According to the SA Savings Institute (Sasi), South Africa’s gross savings rate was 20 percent of gross domestic product in 2011/12, compared to China’s 54 percent, India’s 34.7 percent and Russia’s 24.7 percent.
The government has been encouraging citizens to save, even declaring July our National Savings Month. In this year’s budget, the National Treasury announced that it will introduce plan a in April 2014 to make certain savings and investment plans tax free, meaning that savers using these plans will not pay tax on interest, capital gains, dividends and withdrawals. The plans will also be designed to make it easier for lower income earners to save.
“This will encourage a new generation of savings products. Returns generated within these savings and investment vehicles and withdrawals will be tax exempt,” the Budget Review reads.
However, the government is aware of the vulnerabilities that poor South Africans encounter when trying to invest in financial institutions. In July, the Independent Group Newspapers quoted finance minister Pravin Gordhan accusing the financial services industry, including banks, of being “greedy monsters” driven by “undignified greed”. The industry is in a moral and ethical crisis, Gordhan allegedly said.
“Vulnerable South Africans can be exposed to unfair and manipulative sales and are offered products that will strain their finances,” he added.
Despite the challenges, the government says it is important to save so that “the country would rely less on borrowing funds from other countries to meet its investment needs”.
There are various saving vehicles that South Africans can use:
- Bank Savings
There are different types of bank investments, such as call accounts, fixed deposits and notice deposits. With call accounts, the investor’s money is on call, which means it can be withdrawn on very short notice. With fixed deposits, the investor’s money is tied up for a pre-specified term, usually ranging from one month to five years. With notice deposits, an investor’s money is invested indefinitely and only becomes available after a pre-specified notice period has been served. Interest rates on notice investments are generally higher than that of call deposits, and the longer the notice period, the higher the interest rate.
- Direct investments on the Stock Exchange
The Johannesburg Stock Exchange (JSE) is home to more than half the total investments in South Africa.
A person may invest in shares in different ways. They can invest in a portfolio through a stockbroker, or visit a bank and invest through an investment consultant. The investor can also manage the portfolio personally by dictating to the stockbroker what to do with the shares.
A stockbroker charges a negotiable brokerage fee plus VAT and duties.
The JSE offers protection to the investor against possible fraud by stockbrokers through their guarantee fund of approximately R80m in assets, to which an investor may apply for compensation.
- Endowments
Endowment policies are governed by the Insurance Act and are available from assurance companies only.
Endowments are available for recurring premium as well as lump-sum premium investments. Endowments are pure investment policies, invested in an underlying portfolio, and a wide range of portfolio options which differ from company to company are available.
There are variations in the types of endowment available, such as smoothed-bonus portfolios, market portfolios, specialist portfolios, offshore portfolios, guaranteed endowments and matured endowments.
- Unit Trusts
A unit trust is an unitised portfolio of investments that is managed by a fund manager according to a pre-specified mandate that spells out the objectives of the portfolio. An unit trust fund is called an ‘open-ended’ investment fund, meaning that more units are created every time people invest money in an unit trust.
The value of the unit is determined by the underlying value of all the assets of the particular fund, divided by the number of unit trust holders.
- Stokvels
A stokvel is a savings scheme by group of people who save a regular amount each month. Each person then gets a chance to have the month’s collected cash. Minimum investments into stokvel investments are very low.
- Retirement Annuity
A retirement annuity is a private pension fund. Members are entitled to contribute to a retirement annuity until the age of 70, and are obliged to take their benefit by age 70.
A culture of saving needs to develop in South Africa, in order to reduce the country’s reliance on and exposure to the unpredictable global capital market.
By Abongile Sipondo
The Intensive Report 