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OM Saving & Investment Monitor – The future does not look too rosy

The 2020 Old Mutual Savings & Investment Monitor shows that a staggering 58% of South African households are facing high or overwhelming financial stress as the Covid-19 crisis knocks savings and raises debt levels. The annual survey has tracked the shifts in habits and attitudes towards saving and investing of South Africa’s working metropolitan households since 2009. This year the survey was conducted online with just under 1500 respondents from 29 May – 23 June 2020, in the middle of lockdown level 3.

A key finding is that as many as 57% of those surveyed are earning less than they were at the end of February 2020, while 40% of those currently employed only have enough funds to survive for one month or less should they lose their jobs. As many as 66% of the respondents stated that they are constantly worried about losing their job/income.

The survey report indicates that demands on share of wallet are increasing as never before. A third of consumers find that they are having to support more people financially than they did before the pandemic. “Couple that with a constant fear of retrenchment or loss of income and no wonder stress levels have skyrocketed,” the research report shows. Financial satisfaction levels are at an all-time low, and whilst many anticipate an improvement in the next 6 months, only time will tell as the pandemic unfolds.

According to Lynette Nicholson, Head of Research and Insights at Old Mutual, a very alarming consequence of the financial pressures South African households are experiencing is that just over 50% are currently dipping into their savings just to make ends meet, 37% have fallen behind on paying household bills and 23% have cashed in a savings/investment policy. “Another indicator of the distress the crisis has caused is that only 1 in 2 credit card holders are able to comfortably make their repayments every month,” Nicholson adds. Furthermore, the downward trend in the use of education policies as a vehicle for saving for children’s education continues, from 36% in 2015 to 26% in 2020.

It is clear from the survey results that there will be a definite shift in spending patterns post-Covid. “It is notable that younger consumers are more reluctant to spend less on entertainment, take-aways, eating out and travel, whilst 50+ year olds are less likely to cut armed response, insurance, assistance to children and medical aid,” the report states.

Old Mutual applied factor analysis to the results to help in grouping these expenses into a more meaningful analysis. Five categories of expenses emerge as follows:

Essential Insurance/ accommodation Accommodation, Car and household insurance, Medical Aid
Essential costs Food and groceries, transport, education, assistance payments,
cellphone/data costs.
Priority “luxuries” Cigarettes, alcoholic beverages,
DSTV/Mnet subscriptions, other online TV/movie/music streaming services (e.g. Netflix, Spotify, Amazon Prime, Disney, etc.), E-Hailing services (Uber, Taxify, etc.)
As needed Hair/Beauty, domestic worker/gardener, Nanny/child minder at home, preschool/after care services, home improvements/maintenance, online shopping for food, clothing, shoes electronics and appliances
Nice to have Holiday and travel, eating out/going out, take-aways, having friends around/entertaining at home

“Another interesting finding relates to SA’s informal savings. Although membership of stokvels has declined from 44% to 34% this year, there are more people now contributing to grocery schemes (from 9% in 2019 to 23% in 2020) and burial societies, (from 23% in 2019 to 38% in 2020),” adds Nicholson.

What is worth noting though is the ability of South Africans to make a plan. The survey results show that stokvels are going online and adapting to digital payments. Indebted consumers are also reaching out to creditors and making use of the relief measures on offer (for home loans in particular). Furthermore, loyalty program members are mining those for rewards wherever they can.

“There is no doubt that the pandemic and its effect on our economy has intensified the already dire position of households, placing unprecedented strain on budgets, savings and overall financial wellbeing,” Nicholson concludes.

Similar research conducted by AskAfrica (1-7 July 2020) to determine the socio-economic impact of this pandemic on South African citizens also showed that the debt cycle will impact on the future financial wellness of communities. “Most people are more careful with their money than in the past, and half of the respondents mentioned that they will have to borrow money to cope with the lockdown To date, 49% of people in Level 3 advanced have borrowed from friends, family or employers, and one in five borrowed from a Mashonisa (a neighbourhood loan shark). A staggering 59% of people have heard, read or seen COVID-19 corruption taking place.”

Click here to download the final research report.

Click here to download the key findings presentation.

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