South Africans simply do not save enough – rather, we tend to spend. What is worse, credit is easy to obtain, that we are often spending money we do not have. The worrying reality is that the situation is worsening: household savings as a percentage of disposable income is falling with subsequent rising, debt levels. Savings fell another 0.2% in the first quarter of 2012 and debt as a proportion of disposable income in the same period was more than 75% compared to 53% just 10 years ago. According to the South Africa Reserve Bank (SARB), South Africa’s gross savings at the moment represent only 16% of GDP, compared to key emerging economies such as China and India at 52.3% and 31.6% respectively in 2010.
To save South Africa – to grow the economy and to develop the means to deal with the problems like poverty – we must undertake a drive to save our savings. If more consumers opt to save through mechanisms such as retirement schemes, more capital is made available to increase the productive capacity of the country. This is achieved through the underlying investments in the private sector (through shares, for example) and through government schemes (such as government bonds). At present, South Africa’s economic development is heavily dependent on fickle foreign capital.
What is more, improved household savings will benefit individuals and ease the stressful levels of personal debt among consumers. But how can we save our savings – how can the nation be groomed to become more provident in matters financial?
Innovative plans are being made by the Government to encourage a greater sense of awareness among South Africans of the need to save and to make savings and investment simpler and more attractive. The proposals, contained in a series of consultation papers [Technical Discussion Paper D for public comment], would offer tax-free returns in various instances, for example, interest-bearing accounts in bank deposits, retail savings bonds or interest-bearing unit trusts such as money-market funds; or equity accounts, which invest in shares or property unit trusts.
According to the proposals, earnings and capital growth within these after-tax savings schemes would be tax-free with a combined limit of R30 000 each year and a lifetime limit of R500 000 per individual.
Welcome as such proposals may be, however, they must be seen in the context of the harsh realities of an emerging economy. The level of joblessness in South Africa is inordinately high, and it is problematic to encourage people to preserve retirement savings when there is no provision for basics like food. Nor can the task of changing attitudes and developing a culture of saving be left to state-driven incentive schemes or advertising campaigns. The financial services industry, which is interfacing daily with ordinary citizens, has a key role to play in educating consumers to the need to save.