South Africa is said to have one of the world’s worst savings rates, according to the World Bank and if we keep at these poor saving habits, employees will find themselves living a lesser quality of life than the one they live today.
Philip Bradford, president of CFA South Africa spoke to CNBC Africa about the importance of saving and planning for retirement, in a country where only six percent of people will able to maintain their current lifestyles at retirement.
According to Bradford, South Africa has developed a culture of consumerism, most of the country’s gross domestic product (GDP) growth has come from consumer spending and “unfortunately you can’t spend yourself wealthier”
“The South African system isn’t broken; the problem is that – as with our economy – there is a dichotomy,” said Bradford, mainly between the upper end and lower end of the economy.
“The personal retirement system is working relatively well for the upper end but not so much for the poorer people in the economy, and that’s where I think we need some reform,” said Bradford
Bradford explains that the culture of spending needs to become one of saving and how people need to realise that the goal of saving is a way to create future financial independence.
Based on the Mercer Global Pension Index, South Africa scored a “C” for its retirement system, and is mostly on par or above its fellow BRICS’ partners – excluding Russia.
According to a CFA study, it found that a minimum of 8 per cent of an individual’s income should be put toward a mandatory system. That sort of compulsory system is because we need to be “protected from ourselves sometimes.”
The World Bank also labelled South Africa one of the biggest borrowers in the world, last year 86 per cent of South Africans borrowed money and in a country where unemployment is at 26 per cent
“Why don’t we save money? That’s because we don’t have money,” said Wouter Fourie, CFP professional and 2015 Financial Planner of the Year Winner
“People are so bound by debt in our country that there is no extra spending to save towards retirement,” said Fourie
The 2015 financial planner winner further explained how the ‘sandwich generation’ amplifies the inability to save, a generation of people who are not only supporting their own children but their parents too.
One of the other reasons retirement has become an issue is educating people on the different retirement options.
“Planning your retirement is easier when you know your options… the best one will ensure that you still enjoy life after retirement,” said Michelle Dubois, legal marketing specialist at Liberty
Encourage people to save and make it worth their while and then they will.