Households are taking strain from the poor levels of economic growth and as a result they are cutting back on a number of living expenses.
According to research by the Old Mutual Savings Investment Monitor, confidence in the South African economy has plummeted to 31%, down from 55% in 2015. About 57% of metro working households feel that their income does not cover living expenses.
“People are looking for ways to make ends meet,” said Lynette Nicholson, research manager at Old Mutual. People are cutting down on expenses across the board, including entertainment, holidays, food and even insurance, she added.
More than half (52%) of consumers regard their debt levels as overwhelming and 46% of consumers find it difficult to manage. And 19% of households expect their financial situation to get worse. Last year 41% of South Africans were saving less, this has grown to 49% in 2016.
Most consumers borrow funds from their friends and family to cover expenses and only a third use their savings. “People realise that they should be saving. But there are two sides to saving, the ability to save and the willingness to save,” explained Nicholson. When it comes to the ability to save, you need enough money to save. As for the willingness to save, people mostly procrastinate, she added.
Consumers have also started making minimum required payments to service their debt. “In the past they would contribute a little extra on a home loan for example,” explained Nicholson.
The increasing cost of living and low economic growth add pressure to consumers. Another factor is limited retirement provision because consumers have saved too little. Many of them experience a drop in their living standard when it comes to retirement and often have to depend on their children to support them. As a result, the sandwich generation is at its highest recorded level of 29%, added Nicholson.
If there was no inflation and no investment returns, you would need to save 54% of your monthly income to have 75% of your working life salary to be available for retirement, according to chief economist Rian le Roux.
“A lot of people do not budget, it is important,” said Nicholson. Consumers need to speak to a financial advisor to help create a savings plan.
“People are often embarrassed by the state of their finances and refuse to find someone who can help,” she said. Consumers should also learn to live within their means and not incur more debt.
Consumers should also do their best to start saving early. When it comes to investment, they should consult a registered financial advisor and stick to reputable institutions.