National Savings Month is always important to South Africans, and in particular to us at the South African Reserve Bank, because it gives us an opportunity to speak to families and consumers, rather than to economists, investment analysts and financial-sector executives.
Our work looks as though it is dominated by statistics and macroeconomic trends, but it is in actual fact defined by the task of helping South Africans to deal with sometimes overwhelming financial pressures that they have to face, such as the international financial crisis. Our duty is to reduce those pressures and help to protect citizens against such crises. There is no doubt that South Africans would have been better prepared for the crisis if they had owed less money and had more savings. Many people depended on easy credit and did not spend their money wisely, which meant that they and their families were caught out by the recent recession. The suddenness and seriousness of the downturn were a shock at national level, in business and in families.
That is why Savings Month is essential
One of the bank’s main goals is to try to create an environment in which people who are active in the economy can plan for the future, knowing that their efforts will be worthwhile and their nest eggs safe. This we achieve by making sure that there is financial stability and low inflation. However, on our own we can only provide an environment in which the right behaviors can form: society and its institutions and habits have to respond properly. This response would mean saving and investing enough, and in useful ways. By doing so, the country’s economy would be strengthened.
The South African Savings Institute (SASI) and the South African Reserve Bank
As an institution, therefore, the bank supports the work and years of effort put in by the South African Savings Institute (SASI) in contributing towards creating this kind of environment. On its own, SASI also can never hope to change the saving behavior of South Africans in any important way if all of us do not agree to save. That is why, as the South African Reserve Bank, we have always been in favour of the savings initiative, in particular Savings Month, because it takes the message to all corners of our economy and places the debate right inside the household.
Encouraging people to save is, therefore, extremely important as part of the bank’s duties. For that reason, we pride ourselves on having offered ourselves as one of the midwives for the birth of the institute. We were among the handful of institutions that started SASI about nine years ago and we have proudly continued with this relationship.
We saw an important role for the institute in bringing the public together to support the cause of savings and we have not been disappointed.
The bank is happy to go on lending a hand. Recently, we worked together with SASI on the Teach Children to Save Campaign. The specific focus of this campaign was on the Coin Re-circulation Project, which had as its theme “Every cent counts”.
We sponsored the moneyboxes that are circulated to learners to encourage them to collect coins that have gone out of circulation. As any dedicated saver will tell you, all those five cent, two cent and one cent coins soon add up. Not only that, this is a basic building block for creating a good custom of saving, because it is at the very early stage of developing society.
Insurance for the poor
By focusing on keeping prices steady and fighting to keep inflation low, we at the South African Reserve Bank are creating the best atmosphere for our society in which people will be helped to save and to do long-term planning. We are providing the insurance no other insurer can hope to provide, and that is to the poor and low-income earners of South Africa. What we are doing is to protect their small amount of resources by making sure that they still have the power to buy or can afford to buy with their money. This is the best gift that a government can give to its people.
Keeping the rate at which people save high is a very necessary part of the bank’s bigger plan. The creation of a savings-friendly environment is, and always has been, a key goal of the bank.
There are always challenges, but step by step we are moving forward.
Inflation
Between December 2008 and March 2010, the bank reduced interest rates in South Africa by five-and-a-half percentage points. This brought down the cost of repaying debt for millions of hard-pressed families. Interest rates are now at levels last seen in 1981. This would not have been possible if inflation had not also been brought down successfully.
Inflation has slowed to the lowest level that it has been in four years. Most recently, in May this year, food price inflation – an issue that is very serious to ordinary families – came down to just 0,8 percent. Not that food is cheap, but food prices have nearly stopped going up.
The bank tries to keep inflation inside a target range of 3 to 6 percent. In May 2010 consumer price inflation amounted to 4,6 percent, which was close to the middle of this range.
These numbers are important to families and savers. They mean that pressure on the family food bill is beginning to come down. For the family finances more generally, money now retains its purchasing power better than before. The threat that the savings that people put away for the future will buy less and less has become weaker, with nest-eggs no longer being shattered by inflation.
Debt versus saving
By looking at what South Africans think about, how they take part in and how aware they are of saving, it is clear that a savings-friendly environment that can be maintained is under construction in the South African economy. This work is ongoing, but important elements in the structure are being put in place.
Families that have the means to do so now have the opportunity to start or to carry on with the savings habit and it is most important that they grab the chance to do so.
South Africa’s ratio of household debt to annual income in the first quarter of 2010 declined slightly to 78,4 percent. For the average household, if its income for the year was 100, its level of debt was 78,4. And of the 100 income, more than eight had to be paid as interest on loans, leaving less income for other purposes.
The recent decline is a step in the right direction, but the debt ratio still seems much too high for an emerging nation that hopes to achieve sustained growth and realise the goal of a better life for all.
A higher savings rate is not only one of the main concerns of the nation; it should be a priority for every family with enough money to put a little away.
Savings secure the future. Here, in the present, they help to bring about peace of mind. If people know that they have saved wisely, they will rest easy.
The uncertain financial climate
The bank regularly reports on the financial climate and global economic trends. Very often in doing so we note that the economy has become more risky or that high levels of volatility and uncertainty continue to exist.
There is a clear message here for ordinary families and savers: We live in a world that is volatile, with many things which cannot be predicted. In many markets we have seen trends change, economic growth come to a standstill and hopes become feint with very little warning beforehand.
Job losses
The world is not only changeable; it can also seem contradictory. At the same time that the country experienced first-quarter growth in the gross domestic product of 4,6 percent, the Quarterly Labour Force Survey indicated that in the same quarter one hundred and seventy-one thousand (171 000) jobs had been lost.
Retrenchment can be tragic for working families. So can the challenges created by ill-health and the loss of family members.
Sudden changes in family fortunes are always difficult to manage. But the protection provided by personal savings can at least relieve some of the pressure. More importantly, a healthy amount of savings is essential, because it funds the investment that is needed to encourage economic growth and create jobs.
The path to recovery
South Africa is starting to recover, though relief should perhaps be mixed with a little care at this early stage. It is important that families take the lessons the recent past has taught us and put them to work as we try to put the recession behind us.
Families should look to move along the path to recovery – not by spending carelessly, but by making provision for their own long-term future.
Pay off debt. Build up assets. Spend wisely and save carefully. You can do so in the knowledge that the South African Reserve Bank will protect your ability to buy with your money by keeping inflation low.
Look to the future. Set sensible targets and work towards them.
Begin the savings habit early. But if you have only recently realised the need to build up your financial reserves, take heart. It is never too late to start.
As a strategy, we can do no better than recommend the theme of Savings Month 2010: “Save for the Goal: The path to recovery”.
Source: South African Reserve Bank
