South Africa’s saving rate and saving behaviour reached a significant low at the end of 2017 with a headline index figure 40 points less than what it should ideally be.
This is according to Investec and the Gordon Institute of Business Science (GIBS) Saving Index figures for 2017’s Q3. South Africa’s headline index figure at the end of last year was at 60.5 points, which is the lowest it has been since in 27 years.
According to Head of Investec Cash Investments René Grobler, a score of 100 would represent a “pass mark” for South Africa in terms of supporting the country’s economic growth goals.
“The latest figure of 60.5 points shows we still have a long way to go towards laying the foundation for that kind of growth,” Grobler says.
Investec GIBS Savings Index offers an international benchmark for SA with other countries.
However, despite these figures, Chief Executive of Cannon Asset Manager and professor of economics, finance and strategy of GIBS Professor Adrian Saville says the results are not surprising considering the “tough political environment” at the end of last year as well as the “near-recessionary conditions” that were threatening towards the end of 2016.
Saville also says that SA might be about to witness some change.
“Our sense is that we are on the cusp of a story that has a silver lining,” Professor Saville says.
Grobler adds: “An improvement in 2018, following the positive indications on the political and economic stability of the country in December and January, could bolster business sentiment and confidence in the country.”
Business confidence, according to Grobler, plays a major role in savings and investment decisions.
The Index also reveals, based on the steady decline of South Africa’s flow of savings that fund required investment, that there is a need to structurally reform SA’s economy.
Grobler said a country’s ability to both save an invest is important to build long-term wealth and that a “culture of saving” at all levels of society is essential to ensure the well-being of citizens and a healthy economy.
Alhough there are a number of positive means to promote such a culture, such as tax-free savings accounts, initiatives like Savings Month and tax incentives for retirement savings, Grobler says these efforts are not enough to help the financially illiterate.
Financial literacy is something Grobler believes needs to be introduced into schools’ curricula to children in primary school already.