It is well documented that countries that have a good savings culture tend to be more prosperous than those that don’t, writes Gaye Crossley.
Saving is crucial for any economy. Saving helps consumers buffer themselves during economic hardships. This assists the economy in recovering faster, as bills are being paid and people can continue to buy discretionary products, which ultimately keeps people employed and limits the need for government stimulus.
That’s the word from Bruce Fleming, the Financial Planning Institute’s (FPI) Financial Planner of the Year 2016.
But South Africans are notoriously bad savers. Fleming says: “[Our savings dipped] as low as -2.70% in the fourth quarter of 2013. This means we are borrowing more than we are saving, with a debt income ratio of 80%, which is unacceptably high.”
It is for this reason that South Africans are in dire need of education around the importance of developing a savings and investment culture, something that will be on offer at Leaderex 2016
when free one-on-one financial planning sessions with certified financial planners will be available to delegates. Graham Knight, a certified financial planner (CFP) with Alexander Forbes, says: “We need to educate the public about the pros of saving an amount every month. There are no negatives to saving money.”
South Africa’s saving grace when it comes to saving, however, is that most employed people are being forced to save. “Most companies have compulsory savings schemes in the form of retirement funds. Company retirement funds are [currently] the primary source of retirement savings for individuals,” says Fleming.
Company pensions, however, can provide a false sense of security, as they often do not provide enough to see people through retirement, because they are not tailored to an individual’s specific needs. Knight explains: “Planning for retirement should start the day you start work. [But] people also need to check what portfolios their money is invested in, to make sure it is growing sufficiently in the early years, and is protected from volatility in the last few years before retirement.”
Fleming encourages people to find a professional financial planner to advise them on the best financial plan for their personal needs. “It is important, when looking for a financial planner, that s/he is a CFP and is registered with the FPI. The financial planner you choose should have your financial interests at heart, and should put a plan together based on your lifestyle goals and aspirations.”
Knight says one of the best ways to find a good financial planner is through a referral. “[Either consult] your company pension or provident fund provider, or use a referral. You need to be comfortable with someone who is going to look after your money; if the planner has assisted your friend or family member, that is a good place to start.”
Government, in an effort to boost local savings and investment, has introduced a tax-free savings option, which can be taken up on a variety of platforms, from a bank savings account to retirement funds, to a Johannesburg Stock Exchange (JSE) portfolio. “You can save completely tax-free, meaning you pay no tax on your gains, dividends or interest, therefore enhancing your return,” explains Fleming. The limit on the investments is R30 000 per year, with a maximum of R500 000 over the lifetime of the investment.
And the experts’ final word on investing and saving? Get rid of debt. Knight says: “People need to understand the cost of debt. They also need to understand that taking out a loan to settle another loan will get them deeper into debt over time.”
Fleming’s advice: “Prioritise your debt from the highest interest rate to the lowest interest rate and decide which debt should be paid off first. Once that debt has been paid off, use those payments to pay off the next debt, and so on.”
Getting this right may also require sound financial advice. Look for a good accountant or tax practitioner; use referrals and make sure your practitioner is a member of either the South African Institute of Chartered Accountants (SAICA) or South African Institute of Tax Professionals (SAIT).
Finally, for those worried about South Africa’s financial future, it is important to note that the country is still one of the most structurally sound financial destinations in the world. Fleming believes that if you are in South Africa, spending rands, a local diversified portfolio should form part of a sound investment and savings plan.
Zeona Jacobs, JSE director of marketing and corporate affairs, adds that South Africans should take a long-term view to savings and investments in order to weather the current economic cycle.
Knight concludes by noting that South Africa’s increasing interest rates should provide a huge incentive to save. “Interest rates are rising, so fixed deposits will start becoming viable, as the interest earned will be more than inflation, should interest rates continue to rise.” Don’t miss out…
…on free one-on-one financial planning sessions at Leaderex 2016 on 24 August. One of the highlights of the event, this not-to-be-missed offering is being driven by the Financial Planning Institute of Southern Africa, the leading independent professional body for financial planners in South Africa. Sit down with a certified financial planner and discuss your savings, investment and retirement planning goals.
Entry is free if you register at www.leaderex.com
before 19 August.