Saving in the Entry-Level Market Berniece Hieckmann METROPOLITAN JULY 2013
ENTRY-LEVEL MARKET SAVINGS THE MYTH ABOUT CULTURE OF SAVINGS BOP Erratically employed Formally employed Traditional middle Retirement age Economic viability Help & advise Educate & empower Inform & give options Stretching income R1 = R3 Coupons Windfall savers Shoe Box Dream savers Flexible & Tangible Goal Savers Good Value & Safe Living income Capital & longevity options Savings in arrears (lending) Savings mentality Savings in advance (surplus income)
ERRATICALLY EMPLOYED WHAT S IMPORTANT? WHAT S IMPORTANT GOALS AND PRIORITIES Family s wellbeing Keeping their jobs or finding better ones Ability to help other family members To try or start saving Dependable family providers ADDITIONAL INCOME SOURCES Reduce current financial burdens HOME OWNERSHIP Tangible achievement EDUCATION FOR CHILDREN Enable better lives for their children BETTER JOBS Opportunities and growth DEPENDABLE PROVIDERS Able to help extended family members Improving quality of their lives
FORMALLY EMPLOYED WHAT S IMPORTANT? WHAT S IMPORTANT GOALS AND PRIORITIES Cope with their financial responsibilities Job security know that they are guaranteed an income Adequately provide for their families A decent place to call home Project a good image MORE MONEY Minimise financial worries GOOD HOMES DEPENDABLE PROVIDERS Able to help extended family members FINANCIAL STABILITY Have money ready when it is needed CARS OR BETTER CARS? Own all the necessary symbols of a middle-class lifestyle EDUCATION FOR CHILDREN Set their children up for a better future FUN TIMES Reward themselves for their hard work vacations Comfortable lifestyles
TRADITIONAL MIDDLE WHAT S IMPORTANT? WHAT S IMPORTANT GOALS AND PRIORITIES Independence Self-sufficiency PROPERTY OWNERSHIP Own something meaningful OWN BETTER PROPERTIES Great investments FURTHER STUDIES Continue studying e.g. post-graduate Financial security Career progress GREAT JOBS Ensure success and growth BETTER MANAGE FINANCES Improve financial position & knowledge Health and happiness GOOD TIMES Reward themselves for their hard work going out, dressing well, vacations Ascend to more and better
ENTRY-LEVEL MARKET SAVINGS GOALS BOP Erratically employed Formally employed Traditional Middle Retirement Age Economic viability Help & advise Educate & empower Inform & give options Stretching income Children s education Cars Comfortable lifestyle items Property Family responsibilities Trips back home Emergencies Retirement Leisure and pleasure
WHAT ARE CLASSIFIED AS EMERGENCIES? MEDICAL MATTERS FUNERAL EXPENSES CAR PROBLEMS SCHOOL REQUESTS LOSS OF INCOME HOW DO PEOPLE DEAL WITH EMERGENCIES? Resort to family/friends for assistance Policy payouts (if insured) e.g. Funeral cover Use credit cards Access personal savings Take out loans formal or informal Cancel policies Overdraft Cash in on their investments
STOKVELS SAVINGS ACCOUNTS WHAT SAVINGS TOOLS ARE CURRENTLY USED? WHAT IS CURRENTLY WORKING? WHAT ARE THE PROBLEM AREAS? Simple way to save Very easy to open an account Minimal requirements to open an account (due to FICA thresholds) Low interest rates and returns, high fees and charges Funds are too easy to access Inactive accounts are closed Familiar and easy to use, especially amongst black communities Social - saving as a group of friends, family or colleagues There are guaranteed returns Clear payout timelines - either rotating monthly or at the end of the year Handy when purchasing of high value items e.g. furniture, appliances, school fees Trust can be an issue Members defaulting on payments Some stokvels lack formal structures and regulations Security concerns on pay-outs easy targets Money does not grow
FOOD VOUCHERS UNIT TRUSTS INSURANCE POLICIES WHAT SAVINGS TOOLS ARE CURRENTLY USED? WHAT IS CURRENTLY WORKING? WHAT ARE THE PROBLEM AREAS? They make people feel secure and covered for specific events Customised solutions such as life, educational, funeral or health policies Long-term security Sophisticated way of saving and wealth generation Potentially high return on investments Alternative way of saving for groceries low income Buy as much as one can afford Relatively high premiums Strict requirements e.g. longer terms and surrender penalties Pay-outs often do not match up to people s expectations (RIY issues) High premiums Difficult to access trusted advice Risks are not well understood Fine print is difficult to understand Only applicable for food purchases and not other uses Can only be used at specific retailers
HOW DO PEOPLE SELECT AND EVALUATE FINANCIAL SERVICES INSTITUTIONS? People consider a range of factors when deciding which financial services institution to go with. BRAND HERITAGE WORD OF MOUTH ENDORSEMENT EMPLOYERS ENDORSEMENT The older, more established and well-known institutions are trusted tried and tested Experiences that others have had with the institutions honest and reliable Institutions that give presentations at workplaces are trusted more what is good for my employer should be good for me too Belief that employers have staff s interests at heart ACCESSIBILITY OF FINANCIAL ADVISORS CHARGES Advisors visiting workplaces, communities High charges are always discouraging
EXPECTATIONS OF THE IDEAL SAVINGS PRODUCT Open to all - blacklisted Applicable advice Affordable contributions Full disclosure - transparent info upfront IDEAL SAVINGS Make money grow Value adds / incentives for saving Disciplined savings Access to money in case of emergency Offer security low risk
WHAT IS PUTTING PRESSURE ON DISPOSABLE INCOME? HEADLINE CPI 5.8% BOP Economic viability Erratically employed Help & advise Formally employed Educate & empower Segment CPI Traditional middle Inform & give options Retirement age Stretching income 7% 6.9% 6.8% 5.9% 7%
LIMITED DISPOSABLE INCOME MEANS PRODUCTS ARE PURCHASED ON A HIERARCHY OF NEEDS BASIS There is thus a very unique process to determine and serve needs in the Entry-Level Market INVESTMENT RETIREMENT SHORT TERM RISK PROTECTION DEBT AND INCOME PROTECTION SAVINGS HEALTH EDUCATION FUNERAL
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