By Willem Smith, Executive Head of Distribution at Hollard Life Solutions
The outbreak of the Covid-19 pandemic and its subsequent economic impact have had a profound impact on the culture of household savings in South Africa, which was already lacklustre even prior to 2020.
Statistics South Africa has revealed that the household saving rate in the country has decreased to 0.50% in the fourth quarter of 2020, from 0.70% in the third quarter of 2020.
The Covid-19 pandemic has brought into sharp focus the importance of having savings, and some form of insurance as a safety net for life’s unexpected eventualities, such as loss of income or death.
While the importance of insurance cannot be overstated, many hard-pressed households are faced with conflicting demands on their declining disposable income.
What makes the economic situation even more challenging is that nearly 3 million people lost their jobs during the nationwide lockdown, according to the National Income Dynamics Coronavirus Rapid Mobile Survey. The research was conducted by thirty social science researchers from five South African universities over the course of May and December 2020.
South African Savings Institute (SASI) has noted the December 2017 SARB Quarterly Bulletin numbers, which reveal household savings to disposable income at 0.2% per month, meaning households are saving 0.2% of their income. This represents a positive savings ratio from the last quarter of 2016, and it means that South Africans are starting to save again. Debt to household income remains stubbornly high at 72.5% in
We are living in difficult times where the grim economic environment has required consumers to adjust their expenditure to stretch their rand further. It is unfortunate that some consumers have been compelled to dip into their savings to offset the impact of the lockdown, while others opted to resign from their jobs to access their retirement and pension savings. These decisions have derailed consumer’s savings journey and will impact their tax status and retirement planning negatively.
The economic hardship brought about by Covid-19 has once again demonstrated the importance of having some form of savings for emergencies.
The pandemic has demonstrated how vulnerable we are and how our financial situation can change overnight. It is therefore critical for every household to have a financial plan that supports plans for unforeseen events. Retrenchments or loss of income, for example, have become an unfortunate reality for many South Africans, so it’s important that people know what they are covered for in the event of a retrenchment, so they that in the event that there are gaps in the cover, they can plan accordingly to close any of the gaps in their cover, if required.
With this in mind, financial planning should still be a priority during this time. Irrespective of the amount saved, it is important to make sure that one puts something aside for a rainy day.
Signing up for an insurance cover like income protection, death or disability cover does not have to cost an arm and a leg. Households should examine their monthly expenditure and identify areas like purchases of fast food where they can reduce spending to redirect funds towards essential expenditure to cover short-term insurance.
The simplest savings option is bank savings, as it allows for relatively small amounts of money to be set aside for emergencies, such as medical costs or other unforeseen costs. Insurance also offers a great way to protect consumers from significant financial loss, be it through death or an accident, with a relatively small monthly premium.
The death of the main breadwinner in the household could significantly impact all members of that household. Simple income protection or family provider cover could prove to be invaluable when distraught families are faced with the grim prospect of a death of a breadwinner.
We are living in uncertain times. Many consumers barely get by, and are living from hand to mouth. So, it is crucial that when we can, we should take proactive steps to protect the things we care about.