South Africa’s lack of savings has left us especially vulnerable during this economic downturn. We can blame our economic cycle or take control of our finances...

In July, FinMark Trust released a survey which tested the financial vulnerability of South African consumers.

The results of the Consumer Vulnerability Index showed that South Africans are at risk financially with a score of 5.17. The higher the score, the more financially vulnerable we are. For example, consumers in European countries score far lower with Sweden at 0.4, Norway 0.9, Denmark 1.3, Great Britain 3.1 and Ireland 3.4.

Fear over savings

(Click here to learn how to save for a rainy day.)

What was most interesting about the research is that the worst scores related to vulnerability around savings — a score of 5.74. As South Africans we feel particularly vulnerable because we do not have significant savings which could see us through more difficult economic times.

As we read about retrenchments, or experience them in our own companies, the fact that we have very little saved makes us feel more vulnerable. Statistics show that most South Africans live one paycheque away from economic distress.

While we worry about our lack of savings, we do very little about it. About 35 percent of respondents said the reason they did not save was that they simply could not afford to.

Culture of consumption

While this may be true of very low income earners, this complaint often came from higher income earners.

Unlike global trends where higher income earners tend to increase their savings in line with increasing incomes, South Africans tend to not increase savings as they increase their income.

As South Africans we tend to spend far more on consumption than people in other countries. Professor Carel van Aardt, Research Director at the Bureau of Market Research at Unisa, who undertook the study for FinMark Trust, says the research shows that higher income households tend to buy a new car every two years and upgrade to new homes every five to 10 years, rather than reducing their debt. What is perhaps most concerning is that South Africans find themselves deeply indebted in their 40s and 50s — a time when they should be debt free and saving their additional income for retirement.

Some economists argue that this high level of consumption is a natural cycle of an emerging economy. As a large portion of any population becomes more economically active, it will spend more money on consumption. While a household in a developed economy will be debating whether to upgrade to a new television or save the extra income, an emerging middle class family will be debating on whether to have a television in the first place. It is only once a significant portion of the population has acquired the goods and services that a more developed economy would have, that we will see a stabilisation in consumption.

Article continues on page two: the importance of budgeting and how to budget for savings...

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