R2 000 000 000 000 in DEBT and counting...

It is a fact that South Africa has a very poor savings rate. This is particularly evident across the lower and middle income spectrum. Coupled with the low savings rate are also high levels of personal indebtedness together with rising unemployment and underemployment.

According to the Citizen newspaper South Africans are now R1.9 Trillion in debt.

The above, out of this world, hard to believe number is the debt that can be tracked, this estimated number doesn't take into account the informal "Mashonisa" money lending.

Taking this into account may push the actual number up to and beyond R2 Trillion.

Something of a perfect storm, just not in the good sense. In my opinion, however, the responsibility to “change” starts with the consumer or the man in the street, first.

The regulator, professional industry bodies, government, the financial services industry and financial planners can only do so much, it also has to start with the ordinary citizen to make the mindset shift and take their money more seriously.

Consumers must demand more from service providers but consumers must also demand more from themselves and take ownership for their own financial choices and behaviour.

Perhaps this view might not make me too popular but I do believe that "it starts with us".

Granted, there are real financial challenges amongst certain sectors of the population where circumstances and realities are set against them but there are also those sectors of the population where wastage and poor financial behaviour are prevalent as the main cause of financial insecurity.

As I always say, "the biggest threat to your financial freedom is you". Would you agree?

To create this positive change we have to go back to the beginning, to grass roots so to say, we have to start working with young children and teens so that by the time they become young adults and adults that they are equipped with good life and money skills [as well as a positive attitude towards money]. Not enough is being done.

At this point in time we are expecting mature adults to make a positive change in their financial lives where they may already have well entrenched, established negative money habits.

We are expecting a better outcome but we aren’t changing the narrative. We need to break the cycle and focus on the generations to come, something of a ten to twenty year plan from now if it could be implemented tomorrow. A massive undertaking on a national scale.

Poor savings rates are not limited to income classes

From my experience, the poor savings rate is particularly prevalent in the lower and middle income segments. However, the upper middle income and even the higher income segments also are prone to poor financial decisions, behaviour and outcomes. 

I am of the opinion that overall, no income segment is exclusive or immune to suffering poor financial outcomes. I would say that within the lower and middle income bracket financial insecurity is a daily challenge and is a constant threat.

The lower income segments often have it hardest in that income is limited [as a resource], cost of living [even the basic staples of life] is steep and for many lower income households there are many mouths to feed and an extended responsibility to family members who are unemployed, sick and elderly and so on. One Rand needs to be stretched very far. 

The middle income segment is becoming prey to this scenario too. Keeping up with the Jones’ may prove too difficult in the medium to long term and so this segment will suffer its own consequences if it not appropriately coached and mentored.

The middle income segment has become something of a "sandwich segment" - this segment has to look after children [including teens and young adults] as well as fund for parents that didn't take the necessary steps to secure their own later life financial security.

And so the poverty trap persists and is passed down to the next generation.

We don't rank that well amongst our peers

South Africa's Gross Savings Rate was measured at 14.9% in June 2019. Research indicates that savings reached an all-time high of 42.4% in Mar 1980 and a record low of 14.0% in Dec 2018 [there is a complex study behind these numbers which would warrant a discussion all on its own].

In 2018, the South African household savings rate scored in last place when ranked against the other G20 countries. In short, we are lagging when compared to our G20 peer group. 

Seems like we are all prone to financial errors and mistakes

Households in the lower and middle income brackets have less income [or resource] and have certain real household dynamics and rising cost of living challenges. The margin between income and expenditure is very tight with very little left over for savings, if any at all.

Savings and "providing for tomorrow is being squeezed out".

In ever growing numbers we are seeing expenditure outstrip income resulting in people resorting to short term loans [that aren’t being repaid] as a means of plugging the gap. 

In the lower income bracket every rand counts, so the room for error is fine. However, this bracket is not immune to errant financial behaviour and choices too. Examples of this could be the desire to forego something critical in the budget for branded clothing, or a cell phone contract, a satellite contract, alcohol, gambling and so on.

The aforementioned are “wants”, not “needs”. People need to be coached and counselled about the appropriate use of money in their daily lives.

In the middle income bracket, similarly as with the lower income bracket, the relationship with money is yet again tested. It is just a little more profound. Now the “wants” grow ever more - cars [often bought with big residuals, 72 months and the likes], clothing accounts, residential aspirations, private versus government schooling and so on…I am sure that some of these ring a bell somewhere to many of us.

The above mentioned financial challenges of the lower and middle income spectrum also hold true to the upper income spectrum, just on a bigger scale and may include not only personal financial loss but also business loss if the person in question is a business owner as well as a high income earner. 

Financial mistakes are prevalent, and often very similar in nature, across the different income brackets. It seems that human nature and our compulsive tendencies get the better of us financially. 

Are we really willing to save for tomorrow?

From my experience it is a mixed bag.

You have some clients who might be deemed as “lower income”, and despite very challenging circumstances [and with the right coaching and mentoring] are willing to make the effort and save. This is very encouraging, very inspiring.

The same can be extended to the middle and upper income spectrums where some clients are willing to save [and insure themselves appropriately] but at the same time there are those that don’t save enough [or not at all], either due to circumstance or just because of lack of interest, there are other priorities that they are focused on.

In relation to all the points I have made previously, it starts with the consumer. The consumer must be of the right mindset and be willing to improve their financial outlook first before there can be any positive change.

I find that persistent, consistent, coaching, mentoring, counselling and encouragement [aside from any “advice”] is what helps the consumer get on track, become encouraged and stay committed long term.

This is where financial planners can make the difference but the financial planner must be more of a mentor and life coach rather than purely an “adviser”, initially at least.

More support to entrepreneurs and the self-employed

Personally, I am self employed, I created my own job, I didn’t wait for somebody to do it for me. What I am trying to express is that there needs to be more of a drive to create more opportunity for self employment.

Get people thinking about what they can do for themselves instead of them waiting for somebody else, like the government, to create it for them. Once again, we are speaking about a change and shift in mindset.

Lets create a hand-up mindset. Starts in schools, with young children and teens. 

Teach young children and teens essential life skills that includes [amongst many others] money skills and practical entrepreneurship. It's about developing more of a self help, self upliftment mentality. 

In closing, it is as simple as "1-2-3"[or so it should be!]

Be mindful of your choices and habits. Develop a healthy relationship with money. Learn quickly to manage your income and expenditure at all times.

Always be less credit dependent. There is a today but there is also a tomorrow, harness a savings mindset with short, medium and longer term financial life goals.

At all stages of your life make sure that you are adequately insured and have your Will in order.

These are the “A-B-Cs” or the “1-2-3s” of money skills if you like and are timeless.

Maybe my view that "it starts with the consumer" might be met with some resistance but as much as there are real external forces that act against us there are real internal challenges within our own minds where we have financial behaviour and choices [good or bad] that we have to take responsibility and ownership for.

We too, as consumers, need to demand more of our service providers as much as we have to demand more of ourselves.

Thank you for stopping by and taking the time to read my blog. Please like, share and comment so that we can progress the dialogue further.

Nigel Willmott CFP® | Franchise Principal Momentum Consult Clearwater

0761127678 | nigel.willmott@momentumconsult.co.za