Irshaad Peer CA(SA)
In South Africa, we do not have a culture of saving and we also have one of the lowest savings rates in the world.
In 1979 our savings rate was 33 per cent of Gross Domestic Product (GDP) and after a steady decline is now less than 14 percent. At household level, our savings as a percentage of disposable income are negative whereas in China its is more than 30 per cent.
What does this mean for you?
At a macro-economic level this means that in order to finance capital projects, South Africa needs to borrow money from other countries. As the level of money borrowed rises, the country becomes more and more dependant on foreign capital. Thus, our risk profile increases which in turn pushes up the cost of loans. The Rand then weakens, causing the national balance sheet to weaken also.
At household level, the effects are similar. As we increase our level of borrowings, so our cost of borrowing increases until we become too high a credit risk. Many households then borrow from micro lenders (at prohibitive costs). Our household savings to disposable income was six per cent in the mid-1990s and is now minus one per cent.
What can you do to fix it?
Clearly, we need to get more people to save. Much can be done at the macro level such as increasing the employment rate. But what can we do as individuals?
A starting point is education – the importance of saving and becoming financially independent needs to be disseminated to those who do not save. While there is poverty in South Africa, there is also plenty of wasteful expenditure such as gambling and buying unnecessarily extravagant products. Think tanks propose that we advocate that people develop a savings mentality, have a household budget and stick to it.
It is therefore important to educate and encourage your staff and people around you to save. It will have substantial benefits for the economy and for South African households.
