South Africans are dealing with rising prices in all areas of their lives.
Food costs are skyrocketing thanks to increased fuel prices, inflation and interest rates, and load shedding is not helping either. As a result, people are finding it difficult to save.
More than 5 000 South Africans participated in a study that revealed that the nation is not making optimal financial decisions at critical life phases, leading to enormous gaps in their financial planning. More than half (54%) of respondents in the Sanlam-commissioned study said they would tell their younger selves to treat money as an asset to grow rather than a luxury to spend.
Even though the majority is aware of what they need to do to thrive financially, most people prioritise their short-term finances over making choices that would benefit them in the long run. Most people in all age groups lack access to basic financial products, the study found.
South Africans lose opportunities to make wise financial planning decisions because of “present bias”, or “future discounting”, despite the macroeconomic issues that affect them, according to Zweli Moyo, executive head of the Strategy and Impact Office at Sanlam.
These concepts refer to “the tendency to choose instant reward above the benefits that come with restraint, time, and planning. Research has found that humans cannot picture their future selves in any true capacity. When we think of our future self, the synaptic activity in the brain is the same as when we think of a stranger.”
A News24 study that Sanlam commissioned involving 5 205 South Africans from a variety of demographic and geographic backgrounds revealed that people regretted not becoming financially responsible and educated sooner in life.
Among the key findings were:
The majority of respondents in every life stage said they would advise their younger self to “think of money as an asset to grow, not a luxury to spend”.
“Enjoy your money, you only live once”, came in as the lowest recommendation for younger selves across the board.
The top two financial concerns across all life stages are making ends meet and paying off debt.
The biggest concern after making ends meet is retiring comfortably.
Just 10.3% of 18–24-year-olds surveyed have a retirement product; with only 17.6% in the 25–29 age group having a retirement product. Unfortunately, this means most are not taking advantage of compound interest and tax breaks linked to saving for retirement.
Only 7.2% of the retired respondents said they had felt well prepared to retire.
Overall, 41.3% of respondents have life insurance, with under half (49.4%) of 40–44-year-olds (49.4%) and 45–49-year-olds (47.8%) having life insurance.
Providing for education, leaving a legacy, and even being able to buy property came in as a lower priority across all age groups than paying off debt and making ends meet. This indicates that South Africans are living largely on the back foot, rather than being focused on financial provision for aspects of life that build wealth and success.
Of the respondents, 67.3% did not have a financial adviser. The younger life stages – 18–39-year-olds – used the internet as their main source of advice. Those 40 and older mainly got financial advice from an adviser.
A misalignment between our intentions and our actions frequently happens as a result of competing short- and long-term priorities, as well as the natural desire to pay attention to the here and now, said Moyo.
“We want to thrive financially, but we get into debt. We want to stop working and enjoy our lives, but we don’t prioritise saving for retirement. We want to become wealthy, but we don’t invest. Making decisions today to secure your future financial well-being may seem overwhelming, but there are resources available to help you on this journey.”
Identifying and showcasing ways that South Africans might make wiser financial decisions is our objective said Sanlam's chief marketing officer, Mariska Oosthuizen.
“Our challenge is to find ways to engage differently, to help South Africans understand the value of planning and viewing their finances as a lifelong priority, and to educate consumers about the major financial decisions and plans that need to be made at each stage to live a life of financial confidence.
“Individuals need to understand concepts like compound interest, retirement savings, and life insurance the most because they help them visualise how their financial lives will develop over time,” said Oosthuizen.