Savvy Tips As SA’s Low Savings Rate Threatens Economic Stability

South Africa's savings rate, at 16.3% (down from 25%-30%) affects financial stability and economic growth. Sebastien Alexanderson urges saving amidst economic challenges.

04 July 2024: Research from  Investec and GIBS shows that South Africa has one of the lowest savings rates globally, currently at a staggering 16.3%. This is a far cry from the historical rates of 25%-30% that coincided with stronger economic growth. Moreover, household savings are particularly low, impacting individual financial stability and the nation’s ability to fund businesses and infrastructure projects.

This is according to Sebastien Alexanderson, Head of National Debt Advisors, who said, this July Savings Month, South Africans need to prioritize saving despite economic challenges. Practical savings strategies can help achieve financial stability and support national economic growth.

"Saving money in a tough economy is more crucial than ever," says Sebastien Alexanderson, Head of National Debt Advisors. "Even small, regular savings can add up over time, providing a financial cushion and promoting long-term stability."

Several factors contribute to the difficulty of saving in South Africa. “High unemployment affects both savings and GDP growth, making it hard for many to set aside money. Economic pressures, including rising living costs and stagnant wages, further complicate the ability to save. Additionally, low household savings impact financial stability and hinder the ability to start businesses.

Despite these challenges, it is essential to increase South Africa’s savings rate. A higher savings rate is crucial for achieving the country’s economic growth goals of 5.4%. For comparison, Singapore maintains a steady savings rate of around 40% of GDP, which greatly contributes to its economic prosperity and stability.

Below, Alexanderson shares practical strategies to help South Africans save money, even in tough economic times.

Ways to Save in Tough Times

1. Pause Before Buying: Before making a purchase, ask yourself if the item is truly necessary to avoid impulse buying.
2. Spread Out Big Expenses: Save a small amount each month for big expenses to avoid financial strain. For example, save R1,200 throughout the year for holiday expenses by setting aside R100 each month.
3. Try Online Shopping: Order groceries online to reduce impulse buys and save R500 to R1,000 per month.
4. Rotate Subscriptions: Save R200 to R600 monthly by rotating streaming and fitness subscriptions based on what you’re currently using.
5. Ask for Discounts: Request discounts or fee waivers from service providers or retailers to save money.

Building a Savings Culture

Promoting a culture of savings is crucial for long-term economic growth. Policy changes, such as incentives for household savings and employer-driven savings schemes, can help. Looking at successful examples, Chile increased its savings rate from 2% to 26% of GDP by implementing a mandatory savings system for workers.

Impact of Low Savings Rates

Low savings rates have significant consequences. By the end of 2023, South African households had nearly R2 trillion in outstanding debt, with R25.8 billion in default. This high debt burden leads many to consider early retirement fund withdrawals as a short-term solution. However, such withdrawals can significantly reduce retirement savings, potentially increasing reliance on government pensions or family support.

Advice for Workers

Alexanderson advises individuals considering retirement fund withdrawals to carefully weigh the long-term effects. "Reinvest any withdrawn funds wisely to reduce the impact on retirement savings," he suggests. Additionally, adopting responsible financial management and being cautious with high-risk investments is key to financial security.

"In a tough economy, every rand saved counts. Start small, stay consistent, and watch your savings grow."

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About National Debt Advisors:

National Debt Advisors is South Africa’s leading debt counselling company, dedicated to helping South Africans struggling with their finances become debt-free in under 60 months. NDA negotiates with creditors for reduced monthly interest rates and extended terms, consolidating all debt repayments into one lower monthly installment. This protects consumers from harassment by creditors, secures their assets against repossession, and leaves them with more money to live on. NDA is committed to helping South Africans gain their financial freedom.