“Money, money, money — always sunny — in a rich man’s world.” We’re all familiar with the lyrics of the popular songs and lines from pop culture scenes such as this one and “Money makes the world go round” and “Life is a game, money is how we keep score”. We need no reminding of how this inanimate object governs the way we live our lives.
Time and again the finance gurus admonish us that the younger we are when we start saving, the wealthier we’ll be at retirement age. (Yay! More money!) But in your late teens and throughout your twenties and even into your early thirties, saving and retirement is probably the last thing on your mind. (It’s more like surviving and finding a way to:
a) pay off your student loan, b) buy your first car c) get finance for your first property and d)still have enough to meet all your other commitments at the end of the month). Sound familiar?
This is to say nothing of the ‘black tax’ you still need to consider if you’re a young black South African amongst those who are employed. ‘Black tax’ is the colloquial term given to the financial contribution you’re expected to make towards members of your family who need it most, because of your roots and the associated cultural expectations. Which begs the question — where does a young person in South Africa’s money actually go? How much of it is dedicated to saving and investment of any kind?
With increasing economic pressure from a variety of factors, South Africans have been forced to tighten their belts over the last few months and lower income households have been feeling the effects most of all.
The first of June marked the beginning of Youth Month in South Africa with Youth Day being celebrated nationally on the 16 June, paying tribute to the young people who lost their lives during the uprising against a regime that held them back. Now, four decades later, when we survey the landscape, we’re forced to ask some tough questions; how much has changed? Are South Africa’s youth truly emancipated and empowered now? How does today’s economic picture for our young people today compare to then and how is the culture of saving being fostered in South Africa in 2016?
Before we can attempt to answer some of these questions, we need to consider that although times have changed; political landscapes have shifted, technology has taken the world by storm through the Age of Information and provided new opportunities for youth, fundamentally young people and their approach to money, savings and wealth-building has remained the same (in other words, an attitude of: ‘spend now, there’s time to save later’).
Let’s take a closer look at what’s revealed by the statistics:
1. A report by Goldman Sachs in 2013 (Fig.1)showed that in one decade, over ten million South Africans previously in the lower income groupings (LSM 1–4) graduated to the upper middle bands (LSM 5–10), that is almost 1 million per year over a ten year period, moving into a higher income bracket. The number of South Africans in LSM 5–6 increased from 48% of the population to 69% (7.3million to 12.3million) during this time frame. This has led to what’s commonly known as ‘the rise of the black middle class’ with consequently more disposable income available for spending. This is good news, right? Yes. But before you get too excited, let’s read a little more from that report…
So we know there’s been an increase in the number of black South Africans with more money to spend than before. But how has this impacted their savings and investment habits? If at all?
2. The report goes on to describe the rise in household debt, which increased from 57% in 1994 to 74% in 2013(Fig. 2), impacting on our household savings rate which remains amongst the lowest in the world and putting 10% of the middle class population at risk of slipping back into a lower income grouping (LSM 1–4) if they are unable to manage their debt. With more money, comes more available credit and consequently, more debt. NOT good news at all.
This is a sobering picture indeed. Rising indebtedness has put a tight lid on savings and the stats prove it.
Youth unemployment at 50% is definitely a part of the problem which urgently needs to be addressed, but we have still not answered the question about how our youth (ages 18–30 years old) ARE spending their money and what their savings and investment habits are?
3. According to the Old Mutual Savings and Investment Monitor 2014, only 26% of the 18–30 year old age group are saving for retirement. It is just not a priority right now. (It’s a symptom of that ‘spend now, there’s time to save later’ approach we mentioned earlier)
4. In the study, when asked what they would do if they were to receive a sudden windfall equivalent to a month’s salary, 74% of this age group said they would spend it (either in part or all), 35% would pay off short/medium debt, 29% would invest in shorter term savings and investments. Those who said they would spend it, would buy clothes (36%), food and groceries (35%), household durables (26%), personal luxuries (21%), on home and property (20%), school fees/uniforms (19%), etc. Youth marketing consumer research confirms this, their recent research shows that the most important things young Sowetans spend on are clothing, entertainment (movies, clubs and eating out) and alcohol.
If you weren’t worried before about the state of savings culture in South Africa, you might be by now. Saving has the power to influence the economy in a dramatically positive way, if we can culture an attitude towards making it a priority from early on. If not, the outlook is bleak.
What is, however, encouraging to note, is that the Old Mutual Savings and Investment Monitor also found that 45% of black households contribute to at least one stokvel per month. “This is highest for the R14k — R19 999 income category where it is 53%. On average a black household contributes R685 to a stokvel per month. This stands at R1279 for those with household incomes of R40k + per month. For lower income households, the value is R405 per month.”
The humble stokvel provides a glimmer of hope for young South Africans wanting to advance their economic situation. The power of accountability through group savings efforts encourages stokvel members to stay committed to the savings plan when they might otherwise throw in the towel when faced with a little economic pressure if saving on their own.
Educating and empowering the youth of South Africa on how they can benefit from stokvels, as well as on how to go about joining or setting up a stokvel is a part of StokFella’s vision. Providing the tools to make stokvel administration a seamless, hassle-free process is our mission.
The word ‘stokvel’ originated from the term “stock fairs”, which described the rotating cattle auctions of English settlers in the Eastern Cape during the 1900’s where locals first began pooling their resources so as to be able to trade livestock. This practise of pooling resources has continued to this day, although for different reasons — these days we see stokvel members saving for burials, for investment purposes, for medium-large purchases that they otherwise could not afford.
We hope to inspire and help nurture a new culture of saving and investment among the tech-savvy youth in our country, using this tried and trusted means that has worked for generations before them.