‘Save!’ says Manuel, but offers no incentives

South Africans do not save enough making the country and its residents vulnerable to financial crises.
Issue date : 05 December 2008

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South Africans do not save enough making the country and its residents vulnerable to financial crises. According to the South African Savings Institute (SASI), the savings rate of households dropped from 2,7% of disposable income in 2001 to -0,5% in the second quarter of this year. SASI warned that this is unsustainable. “People who have put money aside are well-prepared to rise above the current economic storm,” the institute said in a recent press release. “Those who haven’t saved are really feeling the pinch.” F inance minister Trevor Manuel has been quoted in the media over the past few months encouraging individuals and businesses to save more, especially as the country’s current account deficit is growing.

Economist Chris Hart from Investment Solutions has also emphasised the importance of measures to increase the country’s savings rate and reduce the pressure on households to spend all the money that comes in. “A high savings rate is essential to help close our trade gap,” he told the media. But according to David French, associate director and tax expert at Ernst & Young, the Income Tax Act provides very little incentive to save. “An individual under the age of 65 earning interest on savings is only exempt on the first R18 000 of the interest he earns,” French explained. The act also doesn’t allow a lot of tax deductions for pension funds, retirement annuity funds and provident funds. According to Elias Masilela, chairperson of SASI, different factors affect the saving habits of different income groups. “People in the low income group mostly live under the breadline, so all their income goes into basic necessities.

Their cost of living simply does not allow them to save,” he explained. Although the middle and higher income groups can afford to save, they often choose not to, as they believe they can borrow money to balance their books in more difficult financial times. D ependency ratios have also been growing because of job losses in the current economic climate. “The average household in South Africa consists of between five and six people and has only one income earner,” Masilela said.

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 “Meanwhile, people who are income earners and do not have anyone to support sometimes don’t save purely because of peer pressure. They would rather drive the latest car or wear the best shoes to compete with friends.” According to Masilela a lack of education about the importance of saving is the single biggest contributor to low savings levels among all income groups. “People are not informed how to make decisions about saving,” he said. – Drieka Burger