Reducing indebtedness and improving savings in South Africa is a major socio-economic challenge, warned MD of Old Mutual’s Mass and Foundation Cluster Clarence Nethengwe.
The metro working population spends an average of 19% of their salaries on paying back debt, according to the 2017 Old Mutual Savings & Investment Monitor.
The National Credit Monitor found that only 48% of the 24 million credit active consumers in the country were up to date with their credit repayments in the first quarter of 2017.
The statistics, said Nethengwe, show that South Africans continue to be big borrowers and poor savers.
"Although these bad money habits are fuelled by the current economic environment and rising living costs, it is a lack of financial knowledge that entrenches them," explained Nethengwe.
He said the financial services sector has an important role to play in helping to build a society that understands the importance of financial planning and commitment.
"While most South Africans know there is a connection between education and long-term prosperity, too few make the connection between savings and wealth creation," said Nethengwe.
He said encouraging more responsible and informed decision-making not only benefits individuals, but also boosts the prosperity and financial stability of the whole nation.
"Healthy, financially stable economies are built largely on the savings of individuals.
"Strong national savings help to finance national development projects and reduce South Africa’s dependency on foreign investment," explained Nethengwe.
He said concepts such as compound interest need to be taught from a young age, to help counteract the celebrity-driven allure of conspicuous consumption.
This is all the more vital in a consumer driven society which regards luxury vehicles, expensive clothing, the latest cellphones and property in upmarket suburbs as highly desirable – even essential - status symbols.
Offering an example, Nethengwe pointed out that a young professional who qualifies for vehicle finance of R10 000 per month needs to know that he/she would be better off over the long term driving a less expensive car for a few years and saving the difference to reap the rewards of compound interest instead.
"We also need to dispel the myth that financial planning is only for the rich and elite," Nethengwe noted.
He added that those earning a basic income or students who receive government funding or take out student loans need to have a financial plan to map out their future.
"With financial knowledge and a more disciplined savings mind-set, South Africans will be far better equipped to improve their personal finances and open opportunities for prosperity."