Why saving?
They say when you grow old you grow very strong. When you are young, you have to take your husband with you to the store to help you carry all the bags. When you’re old you don’t need any help – you carry all the bags yourself!
Unfortunately as we all know – this has nothing to do with strength but all with the rising food prices. What you can buy with R100 today can probably fit into one bag instead of the five bags or 10 bags when you were younger!
The rising food prices, electricity hikes, etc. make our challenge to gain financial freedom even more difficult. On top of it we keep buying very often unnecessary items, even though we cannot afford it. And what we cannot afford, we borrow.
Too many South Africans are drowning in debt. Not only do we live above our means but we are also some of the world’s worst savers. If we want to grow our economy and create jobs, we have to start saving – as government and as a nation. We can learn from China, who finances most of its own growth because it has one of the highest savings rates in the world.
KwaZulu-Natal (KZN) government’s cost-cutting measures
It is possible to get out of a debt trap – as the KZN government has proven with its cost-cutting measures. The measures brought down our 2009/10 financial year’s projected mid-term debt from R5.6 billion to below R1.7 billion.
Likewise we appeal to our people in KwaZulu-Natal to get out of their debt traps and start saving. The global recession has severely impacted on households, businesses and our economy. Although we are in the recovery process, many households and businesses are still struggling and unemployment remains unacceptably high. Elias Masilela of the South African Savings Institute warns that “If a household is not saving enough to fund its needs, whether it is consumption or investment, it will have to borrow. The more you borrow, the less creditworthy you become and the higher the interest rate you have to pay.”
Danger of borrowing
It is very expensive to borrow money because you have to pay back the money plus interest and you end up paying more than the money you have borrowed.
Some people walked right into the debt trap when the Soccer World Cup kicked off. Television sets flew from the shelves – many bought television sets on loan instalment agreements. Let us say the price of a television set was R3 000 and you signed a contract to pay back the money over two years. You agreed to pay back the money by paying R404 per month. Now let us do some quick calculations: if you pay R404 for 24 months (two years) then your total will be R9 696. How much did the television set cost? R3 000. How much extra will you pay for the television set according to the loan agreement? R6 696! You could have bought three television sets with that money! (Do sum on flip chart or board).
Now what if you started saving R404 a month - eight months before the kick-off of the Soccer World Cup? Then it would not have been necessary to pay R6 696 extra. Another option was to go the lay buy route – if the store agreed, you could have paid the store monthly while the television set was kept for you.
The more money you borrow, the more you pay back. That is why it is always better to buy cash. But very few people have R3 000 in their pockets and that is why we must put money aside for the times we will need big sums of money. It can be for your child’s education; to buy a bed or a fridge or a cow; or a deposit on a house a house or a motor car or you want to start your own small business. It can also be for unexpected events, like a funeral. Saving can help you achieve any financial goal.
Be a financial role model
Stop telling your children to be careful with their money. Stop telling them it's important to save money. Stop telling them about the dangers of credit cards. Parents should show them! You have to be a financial role model for your children. Reduce your debt; pay your bills and rebuild your credit if you are in a debt trap. Use financial challenges as opportunities to teach kids basic lessons about money. Your attitude towards money will impact on the financial goals your child will or will not score.
Getting out of the debt trap
Worrying about paying bills or having enough money to survive kills a person’s self-esteem and confidence. In addition your children will start copying your attitude and financial habits. Therefore it is vital that one finds solutions.
Savings are sometimes found in unexpected places:
By planting trees strategically you can either keep your house cool in summer or protect it against the cold in winter. Not using so much heating will certainly cut down costs.
- So will using a kettle rather than boiling water on a stove reduce electricity costs
- Using the right wattage of bulb will also save electricity. For instance, a 100 watt bulb give off five times the light per watt consumed of ordinary bulbs and lasts six to 10 times as long
- Make a list of your regular bills and how much they cost you each month. If you are not sure where the money is going, keep a spending diary. Make a note of everything you spend, even if it is 50 cents
- Once you know exactly on what your money is spent, you can start trimming on the unnecessary. Calculate what money you will have coming in and how much you need. Then figure out what changes you will have to make to live within your limits. Get your children involved in some of these decisions. It will make them feel like they’re helping you and it’s a good way to teach them about money
- Don’t let your children bully you into buying them expensive brand clothes that you cannot afford. That is why it is important that you let them be part of the budgeting process
- Public schools cannot deny a child education because his or her parents cannot afford to pay school fees. Orphans are automatically exempted but guardians must inform the school that the child is an orphan. If you cannot afford your child’s school fees, apply for either partial or full exemption and show the school proof of your income
- Sometimes you can still spend on the things you enjoy by getting better value for money. They say information is a consumer’s best friend. Some stores have special pensioner’s days where you get discount if you shop there when you are a pensioner. Buying in bulk is often cheaper – ask friends to share if you cannot use everything
- Be aware of loan sharks. Do not let your family members get you into trouble by borrowing money from these people. If you start borrowing money to pay debt you are in big trouble. It is heart breaking to see how some loan sharks will wait in their vehicles at the pay points to ensure see that their “clients” pay them first. With the excessive interest they have to pay they immediately have to borrow more money
- Ask. This is a learning experience, so if you need help, ask. Good honest business people and people who understand finances, such as the bank, are a good place to start and remember the sooner the better. Become money-smart
- Group saving: If you join a stokvel, make sure that the rules are followed and that you know and trust each other
- Individual saving: If you end up getting child support grants for your children or grand children and don’t need to use all the money for daily necessities – start a college savings plan for the children. Alternatively you may want to set up a guardianship or trust account for your children to receive their benefits
- Always try to save a fixed monthly amount - even if it is R10 – at the beginning of the month, instead of saving whatever remains at the end of each month
- Let your children make sandwiches the night before to take to school the following day, rather than buying “something” at school. You can put anything on the bread – even a spoonful of spinach or potatoes that was left of dinner. It is not only cheaper but also healthier
- Start your own vegetable garden and to keep chickens. Then you don’t even have to buy spinach or eggs
- You can also save by giving – not just out of generosity but also by agreement to receive the favour back when needed. E.g. you can offer to help your neighbour to plant or harvest his vegetables but by doing this you expect him or her to help you when you need to plant or harvest.
Teach your children to save
The secret of saving is to start the habit of saving at a very young age. Teach your children to save. Then they are taking ownership of their own future. You don’t need to have lots of money to save. There is a saying: When you look after the cents the rands will look after themselves – meaning if someone takes care not to waste small amounts of money, they will accumulate capital/the cents will become rands.
Ways of teaching children:
- Use grocery shopping to help demonstrate wise spending. They must know what the budget is before entering the store
- When withdrawing money from an ATM, explain to a very young child that it is hard-earned money, not money that comes out simply by pressing a few buttons
- If you can, give the child a small allowance, 50 cents a week can teach valuable money management
- Encourage your child to write down his or her purchases, savings and gifts in a notebook. Also help them to set goals
- Have family financial meetings to talk about saving goals, as well as needs and wants.
Remember: Unplanned splurging on unnecessary items will rob you of a chance to later fund something meaningful, like a child’s education or to provide for a comfortable retirement. Saving today will pay for tomorrow.
Let us score a goal against bad debt by creating a strong household savings rate. Not only will parents and children benefit but ultimately it will result in a strong economy, job creation and a better life for all. Make financial recovery and freedom from debt your GOAL for 2010 and
