Snapshot of SA s savings culture

Transcription

1 Snapshot of SA s savings culture René Grobler, June

2 Why does savings matter (at a macro level)? Savings drives economic growth (and vice versa) The virtuous cycle of savings, investment and economic growth Saving funds investment, investment fuels growth, growth leads to higher saving in a virtuous cycle of economic development (Solow, 1956) In the short term savings and growth drive each other In the long run GROWTH drives SAVINGS If we want to drive savings, we have to support economic growth Countries with an average GDP growth of > 6% all achieved savings rates of > 20% Source: World Bank UNISA study, data

3 % World GDP Why does savings matter (at a macro level)? Investment (savings) is the engine for sustainable economic growth SA has predominantly been a consumption led economy Consumption driven growth, backed by excessive borrowing can become a debt trap To achieve sustainable growth, we need investment not excessive consumption Investment = savings (our own or those of foreign investors) Domestic savings reduces reliance on foreign investment Saving provides consumption stability Source: GIBS Gross Saving Rate Gross Capital Formation 3

4 SA s national investment and savings SA has relied on foreign investment to fund excess spending Investment savings gap Funded by foreigners Gross savings (% of GDP) Gross capital formation (% of GDP) FDI plus Savings Gross capital formation (% of GDP) 4

5 Why does savings matter at a micro level? At an individual / household level, savings protects from income and spending shocks Individual savings Reduces vulnerability to external economic shocks Provides for a comfortable retirement Smooths consumption over a lifetime Source: OM Savings Monitor

6 Who contributes to SA s domestic savings? Government Tax revenue government spending = savings Savings invested in physical and social infrastructure Corporate SA Retained income = savings Profits deployed for growth, maintenance, projects Households Income not used for consumption = savings Saving for retirement, shocks, large expenses and other goals National savings Savings = Total of Total Government of Government + Corporate + Corporate + Households Households (dis-saver) + (highest saver) + (negligible saver) (dis-saver) + (highest saver) + (negligible saver) 6

7 SAVING % GDP The issue with SA s savings. Not a pretty picture on its own with a definite declining trend

8 Turkey Brazil Argentina United Kingdom South Africa United States Mexico Canada Italy European Union France Australia Germany India Indonesia Russian Japan Korea, Rep. Saudi Arabia China Saving % GDP Average Saving Rates: Compare us internationally and the picture looks even worse

9 Saving % GDP BRICS average savings: SA is close to the bottom of the pile compared to the BRICS China Russian Federation India South Africa Brazil 9

10 Household savings are low Household/ private savings levels are extremely low SA has a spending culture Income levels, living expenses, high debt servicing costs all play a role Household savings Source: SA Reserve Bank

11 What drives private (household) savings? Ability to save Levels of income Country demographics Employment levels Education Willingness to save Levels of uncertainty Access to credit Trust / mistrust Retirement policies (access) Financial literacy Stability of income Levels of debt Source: World Bank, SARB, WITS Business school 11

12 SA Demographics impact on savings The Lifecycle Hypothesis (LCH) The young save less and spend more Middle aged save for retirement Older generation are dis-savers spending in retirement SA has a relatively young population Increasing burden on middle aged population to survive, they do not have enough to save ( Sandwich generation) SA has a very high age dependency ratio 12

13 SA snapshot: Income, debt and impairments Lower disposable income with high debt levels Low disposable income High debt levels High impairments Household Consumption Expenditure (HCE) growth has been revised to 2.2% from 2.6% y/y for HCE accounts for two thirds of GDP. Debt levels are still comparatively high as a percentage of disposable income, households have a high sensitivity to interest rate hikes The number of consumers in SA with impaired credit records (45%) is higher now than in 2009, the time of SA s last recession. Source: SARB, Investec 13

14 Poverty and inequality SA has one of the highest (GINI coefficients in the world: 66%), signifying that SA has a large percentage of the population living below the poverty line Females are more impoverished than males in South Africa, with poverty headcount of 58,6% as compared to 54,9% for males Source: World Bank, Rawson, Economist 2011, Stats SA 14

15 Factors impacting savings (ability to save) Unemployment rates rise to 26.4% in Q and prospects of meaningful job creation remains weak Source: Stats SA 15

16 Access to credit SA has unprecedented access to credit This fuels a consumption-driven society and disincentivises the need for savings Higher debt levels and therefore higher debt servicing costs also leave households vulnerable to interest rate hikes 16

17 Financial literacy level of education plays a big role We have to improve the general levels of education Income levels, poverty and unemployment all related Source: FSB Financial literacy report

18 Financial literacy SA s understanding of financial products is poor Financial literacy is low Information is not that easily accessed or understood OMSI research shows 80% want to learn more about how to save Source: FSB Financial literacy report

19 Savings vehicles Informal savings still important (approx stokvels) total investment approx. R44bn Basic products such as funeral policies, pension funds and bank savings still the most widely used The financial sector has a role to play in simplifying the choices, providing relevant and easy to understand information to educate and make comparison possible 19

20 Factors impacting savings Consumption / living expenses account for 65% of income Source: OM Savings Monitor Living costs are high Debt servicing costs are high Savings culture is poor 20

21 Factors impacting savings Retirement reform and savings incentives from government Retirement reform? Formal savings schemes? Tax incentives Access to retirement funds prior to retirement 21

22 The psyche of savings advice and trust In SA 34% say their Bank Consultants are their primary source of information for savings decisions (followed by word of mouth 20%) Source: E&Y Global Banking Survey

23 The psyche of savings advice and trust In SA 34% say their Bank Consultants are their primary source of information for savings decisions (followed by word of mouth 20%) Source: E&Y Global Banking Survey

24 SA s savings culture in a nutshell SA s savings rate is low compared to international counterparts South Africans have a spending rather than savings culture Unemployment, poverty and income levels negatively impact on South Africans ability to save Ease of access to credit is a disincentive to savings Access to retirement funds prior to retirement Tax incentives have only nudged savings time will tell What can we do? Education Improve financial literacy Transparency, accessibility and simplicity of savings products Credit extension regulation Stimulate economic growth (and income levels) by incentivising small business growth Retirement reforms? 24

25 Thank you 25