A savings culture?
Conventional aggregate measures of savings would lead us to conclude that South Africans do not save. Perhaps we need a broader definition of this concept to understand the dynamics at play. Evidence suggests that South Africans do save, but their ways of doing so, and their priorities, may not be what other stakeholders want or expect. As a result, their savings may not be formally measured.
Stokvels – a multi-million rand industry
It is widely known that there is an informal savings sector in our country which caters to approximately 33% of the population8. Previously conceived notions about the lack of saving among low-income earners have been refuted with evidence from the Finmark Trust, which showed that 48% of individuals in LSM 5–6 who have an average monthly income of R4 497.60, are using stokvels for short- and medium-term savings.
A stokvel is a group savings scheme providing for the mutual financial well-being of participants, as well as social and entertainment needs9. Individuals within the same community or family voluntarily make contributions on a regular basis which are used for an agreed purpose. Each member of the group has access to the funds whenever a need for it arises, as long as they keep up to date with their contributions. Despite being classified as a type of informal savings vehicle, stokvels are relatively formally structured in their approach. They are governed by a constitution10 and it is not uncommon for stokvels to elect a treasurer11. Most stokvels will deposit their contributions into bank accounts12.
This illustrates how many South Africans solve their financial problems via collective, rather than individualised, mechanisms.
Alternatives to retirement savings
The financial services industry often places greater emphasis on retirement outcomes and having sufficient savings and insurance for emergencies. However, as we raised in Benefits Barometer 201313, individuals often have other financial priorities.
What is particularly significant with housing and education is that both act as partial substitutes for retirement savings and other forms of social protection. In the case of education, the World Bank recognises that:
“If in a particular context there is a well-established tradition according to which adult children support their parents in their old age, it may make perfect sense for a person to use her savings to finance her children’s education rather than investing it in financial products14”.
In South Africa, the Old Mutual Savings and Investment Monitor consistently reports that a large proportion of South Africans expect to be supported by their children in retirement – the latest figure from July 2013 being 38%. In the same survey, they found that 45% of 18- to 30-year-olds are planning to support their parents when they are old, with another 16% expecting it, but not planning for it. This is normally seen as negative because it indicates dependency, but given the World Bank’s comment, it doesn’t have to be. Concerns around dependency on family are typical of a Western mindset which focuses on independence, but may not be relevant in cultural contexts with higher levels of social capital.
Financial support in retirement