Should we bother to save? Although this question does cross young minds, it tends to be eclipsed by the many ‘cooler’ things that money can buy. With a new phone, car, clothes, and now even Starbucks coffee clamouring for the attention of young consumers, saving money is too seldom prioritised.
Rodney Msimango, senior investment consultant at Old Mutual Corporate Consultants, says that this, coupled with the fact that retirement lies in the distant future, is a large contributor to the poor savings culture of South Africa’s youth.
He says research has shown that many people lack a psychological connectedness with their future self. “A young person’s perception of what their life during retirement will be like is often unrealistic, considering their poor savings habits. We tend to see the retired version of ourselves in a completely financially stable position, when this is not likely unless we focus on it as a goal.”
While South Africa has a high youth unemployment rate and those without a job cannot be expected to save, those fortunate enough to have a job need to be planning ahead and saving instead of focusing on immediate gratification. The 2015 Old Mutual Savings & Investment Monitor, which surveyed employed, metropolitan individuals between 18 and 23 years (Z-Generation) on what they were saving for, revealed that the majority of respondents (84%) cited electronics, followed by home appliances and furniture (both 63%). When asked what retirement savings vehicle they were using, only 34% listed a pension/provident fund, and 21% an RA.
A common attitude among the youth is that ‘Savings can wait’, says Msimango, however the harsh reality is that it cannot wait. “While we’re living our lives, time is rushing by. Time is not only a valuable ingredient for saving and investing, it’s also something that cannot be replaced once it’s gone.
“There are far too many examples of people who reach retirement only to realise that they never prepared appropriately, never saved enough, started too late or just underestimated the amount of money necessary to maintain their standard of living.”
Msimango acknowledges that the problem of not saving enough is not confined to our youth, but stresses that good savings habits need to be instilled from the first pay cheque, and that companies can play a defining role in educating their employees. “Often we find an individual is waiting for the right time to start saving or waiting until their salary is large enough. However with this attitude they are unlikely to ever start saving as there will always be expenses that consume income. Salary increases are also often consumed by a higher standard of living, or by more responsibilities as a person’s life progresses and reaches milestones, such as marriage and children.
“A more forward planning attitude can make all the difference to the quality of your later years.”
He adds: “While savings grow slowly at first, compound interest means that as original savings continue to grow, so does the growth on the savings. This process however requires time. To maximise the power of compound interest, you ideally need to save from the beginning of your working career.”
Msimango sums up why we need to reframe saving for retirement, a far-off event, to saving for financial freedom. “No one knows what the future holds – whether retirement age will be reached or if the ability to earn an income may abruptly come to an end. Savings are the means to prepare for life’s surprises as well as achieve our hopes and dreams.
“Don’t just save just for your retirement. Save for your financial freedom, and save as much as you can as it makes you more resilient and able to deal more effectively with many of life’s challenges, including retirement,” concludes Msimango.