Saving is a matter of discipline

Consumers are aware they have to save and they want to save, but it’s difficult, especially for lower- to middle-income consumers. The concept of saving is “nice to have” but difficult to do, says Nolene Parbo, senior manager of deposits and retail banking at Standard Bank.

Some consumers are willing to have banks “forcefully” take money from their accounts and deposit it in savings, through a debit order or stop order, says Parbo. But saving is about consumers having the discipline to pay consistently first, she says.

There is a desire among lower-income consumers to become more knowledgeable about saving, says Parbo.

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DISCIPLINARY HEARING: Nolene Parbo, senior manager of deposits and retail banking at Standard Bank says some consumers do not have the discipline to save money. Photo: Provided

An economic review by BankServ Africa indicates that disposable income for households is increasing – though still low – and consumers have excess funds available and increased capacity for savings.

This has been accompanied by a reduction in household consumption expenditure, which remains low relative to real disposable income, she says.

Credit extensions have also been limited, so consumers can’t supplement their income with debt any longer.

In 2014, household credit growth slowed from a rate of 5.5% to 3.4%. Household spending was further affected by the increase in personal income taxes, rising fuel levies and electricity tariffs, which all contributed to a higher cost of living.

The household industry deposit growth is a measure that indicates how well households manage their credit flows, says Parbo. Growth in March 2015 showed an increase to 14.93% from the previous year’s 14.27%. The average year-on-year growth for 2015 was 15.48%, up from 10.25% in 2014. There were positive trends in household saving but disposable income is still low at around -2.3%, with debt still at high levels.

Behavioural trends in the Standard Bank Portfolio indicate that although new savings accounts peak at the first quarter of the year, they reduce over time. Consumers do not make deposits into these accounts consistently. It is not easy to be disciplined, but it is necessary to build a culture of saving, says Parbo.

Saving is simple 

Parbo says saving is as simple as cutting out luxury costs. If a consumer saves R100 a month, just by reducing coffee or cigarette expenditure, at a compound rate of 6% over five years, the consumer would have saved R8 029.

Feedback from the educational initiatives that inform consumers about ways to save shows that consumers are often unaware of how simple saving can be, she says.

Exclusion from the formal banking sector is not a major challenge in consumer saving behaviour, says Kabelo Makeke, head of customer financial solutions for retail at Standard Bank.

I do not think banking is that complicated any more – there are so many products to make it simple. 

Banking penetration has improved over the years, and 79% of adults use banks now, he says. Most consumers now understand and know what a bank account is and how it works. The savings culture, however, is more limited by the capacity to save.

“I do not think banking is that complicated any more – there are so many products to make it simple,” says Makeke.

Banks and financial institutions have launched tax-free saving accounts as part of an initiative by National Treasury to encourage saving. There has been interest from middle-income to upper-income groups, says Parbo. Some consumers see it as a retirement-saving opportunity and others see it as a chance for long-term saving for their children’s futures.

At the moment, though, many consumers are trying to understand what it entails and what its benefits are.

She says the available products will evolve as Treasury releases new regulations.

Nitesh Patel, head of customer financial solutions at Standard Bank, says these accounts often complement existing long-term savings products like retirement annuities.

Parbo believes structured products create discipline, through debit  and stop orders, and they are becoming popular because they keep people accountable to saving. Guaranteed returns on lump sums also encourage consumers to save for long-term goals like retirement.

Why save? 

Saving helps improve the consumer’s credit status – important for long-term purchases like a house, says Parbo. By saving towards a long-term deposit, the consumer will have lower rates and less debt.

Saving also provides a back-up fund for emergencies. In addition, consumers spend more during the December and January festive season, while their income remains constant. These are situations in which they should be able to rely on savings, Parbo says. Savings can also be used to build a comfortable nest egg for retirement, which could supplement the income from a pension fund.

If investment opportunities arise in the market, consumers have a chance to take advantage of them because they have cash flow readily available. Saving also improves national funding, reducing inflationary pressure and lowering the exchange rate. It avoids the need for foreign loans, says Parbo.

This article was featured in Finweek magazine.

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