By Sisandile Cikido
Over the years, banks and financial experts have made ongoing calls for South Africans to save for the proverbial ‘rainy day’. Then, in March 2020, that rainy day arrived, as Covid-19 delivered a torrent of financial challenges that left anyone without accessible savings and investments struggling.
A recent study conducted by a leading data analytics firm, Kantar, revealed some very interesting insights into the real reasons behind why, so few South Africans are saving. And unfortunately, the hard lessons Covid-19 delivered about the importance of saving still don't appear to have been taken to heart by many South Africans.
Arguably one of the most interesting findings of the research was that, contrary to widely held perceptions, most South Africans want to save, and they understand the importance of doing so. However, the large majority find it difficult to do so because they find most formal savings offerings overly complex and intimidating, and they simply don’t understand how the typical savings account can help them grow their money.
In addition, the research also revealed that the younger generation is increasingly turning to new ways of growing their money, such as share and forex trading and cryptocurrency as they generally have a greater appetite for risk than tried and tested savings vehicles.
This is an indication that younger investors look for more aggressive growth as they want to build wealth and fast, which isn’t necessarily a bad thing. With time on their side this allows investments to go through various stages of growth, and, in bad seasons, they have the time to wait out the storm. However, it is imperative for young investors to investigate all investment platforms and do their research on any asset class or investment type. This is to preserve losing the very wealth they were trying to build.
The research findings further highlighted that many people are reticent to put their money into a formal savings product because they see banks as less of a partner in building financial security, and more of a gatekeeper, forcing them to ask permission and jump through hoops to then get their money back when they need to.
This misperception isn’t helped by the fact that many people believe that formal savings products simply aren’t meant for them, but are rather targeted at wealthy individuals who have high levels of financial literacy.
This also highlights another significant hindrance to the development of a much-needed savings culture in South Africa, which is that few individuals recognise, or understand, that the various savings products available through formal channels are designed to help savers meet very specific goals.
So, for example, someone who needs to save money that they may need quickly for an emergency would choose a very different savings account to the person who has five years in which to save towards a long-term goal. And the savings goals inform the design of the savings solution, which means some prioritise access over interest levels, while others like fixed deposits, focus more on delivering maximum growth over time.
The failure by many people to understand these differences in design has led to a widespread misperception that when they put their money into a savings account, they effectively lose control over it. This is obviously not the case. In fact, the opposite is true, and most formal savings solutions offer savers total control in the form of a choice of what objective they want to prioritise in their savings plan.
And another significant challenge to building a savings culture is the lingering perception that formal savings offerings are expensive. Despite most bank savings accounts charging low, or no fees, many potential savers still believe that high account charges will eat away at what little savings growth they achieve. High minimum deposit requirements are also seen as a significant barrier to entry by many.
So, while banks have come a long way in terms of simplifying their savings offerings, it’s clear that there is still much work to be done. Obviously, there’s no one-size-fits-all savings offering that will provide a solution to all these challenges. But understanding what is holding South Africans back from saving the way they should, and then acknowledging that a more consumer-oriented approach is needed for the design and marketing of savings products, are two important steps in the right direction.
Clearly, what is needed, is a combination of innovative, simple and people-centric savings product design, full transparency around costs and rates of return, a greater investment in consumer education, and a commitment by banks to put a more human face to savings.
And from a consumer perspective, acknowledgement of the importance and value of saving, even if it is just a small amount to start with, will go a very long way towards building the long-overdue savings culture.
Sisandile Cikido is the head: retail investments at Nedbank.
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