The Modern Economic Challenges That Make Saving So Difficult

Setting aside a little of our monthly income is undoubtedly an excellent way to build up a financial cushion that becomes essential when faced with an unexpected cost.

Many households in South Africa also rely on savings to cope with increases in outgoings or to finance festive periods, holidays or other occasions.

However, the reality is that only around 12% of adults believe that saving is a priority – particularly when budgets are stretched and only cover essentials such as rent and food.

Trading Economics reports that household savings rates decreased to 0.2% in quarter two of 2022, dropping from 0.3% in the previous period, reflecting a potential savings crisis that we can see coming and that will be further exacerbated by rising living costs.

Savings Trends in South Africa

The South African fintech Wonga has analysed the data on why so many families and households are struggling to save – and the changes necessary to make building wealth and contingency savings accessible.

The research project involved surveying 12,700 respondents to assess how they set financial goals and their current position to analyse aspirations, savings ability and factors limiting their capacity to save.

Overall, participants were keen to achieve a more prosperous financial future but found saving all but impossible due to financial illiteracy, economic difficulties and lack of opportunities to improve their status.

Even though 20% of respondents were ambitious and aspired to achieve earnings equivalent to the top 3% of the workforce, half reported a current income of under R10,000 per month.

Around 4% of the surveyed households hope to earn R4,000 per month – significantly below the updated Living Wage of R5,582 – R9,648 per month.

Most households spend the majority of their earnings on basics such as housing and groceries, and 31% focus on covering rents or property loans as the most important outgoing.

Only 12% included savings as a priority because there simply isn’t enough financial flexibility to funnel even a small amount of income into longer-term savings.

Reforming Financial Literacy

The core challenge is that many South African households don’t have the capacity to save or don’t recognise why it may be important for their future well-being.

Households expecting to save money have fallen from 16% to 12%, which indicates why financial hardships are a key reason so many cannot save or do not consider it anything close to a top priority.

However, despite average earnings being below the minimum required income to meet the Living Wage, aspiration is high.

Of those surveyed, 34% hope to purchase a luxury car, 67% wish to buy a rental property, and 38% of those saving towards retirement intend to retire between ages 40 and 50.

To achieve those aspirations, average wages must rise to keep pace with real-world living costs. Working adults must have access to financial literacy tools and educational resources to showcase how saving can be beneficial.

Without those steps to change, the savings rate may continue to drop further, leaving an even higher proportion of the population dependent on social support programmes such as The Older Person’s Grant, without any means of their own to fall back on.