FINANCE FEATURE: Too old, too poor, too late

by | Oct 21, 2021

Financial literacy is not a side effect of wealth; wealth is a side effect of financial literacy – unknown  

My grandmother spent 48 years of her life working for a popular retail outlet in the heart of Johannesburg. When she retired at the age of 65, she had little to no savings and a meagre retirement fund. 

About five months into her retirement, she had to rely on a government grant for her upkeep. If a postmortem could be done on the state of my grandmother’s finances, the cause of death would be attributed to a chronic case of financial mismanagement and neglect.  

As a result of her dire financial situation, my grandmother has had to rely on the monthly pension of R1 890 given to her by the Social Security Agency of South Africa (Sassa), and impose the so-called ‘black tax’ on her children and grandchildren. 

My grandmother is not alone in her financial predicament post retirement. According to data from the 10X Investments third retirement reality report, as few as 6% of South Africans will have a decent retirement plan. The report also found that more than 49% of South Africans do not have a retirement plan at all, and of those who do have it, 75% are concerned about whether it will yield enough money for them to retire comfortably. South Africa has one of the lowest savings rates in the world, 25.1% lower than the global average. 

According to BusinessTech, 30%-45% of South Africans do not put aside any money for retirement. This lack of savings may be the driving force behind the country’s low economic growth. According to an economist at Stanlib, Kevin Lings, the country needs a savings rate of about 25% to become a vibrant economy that creates jobs. 

What is a comfortable retirement?  

Standwa Nongauza, brand manager at Easy Equities, an investment platform that offers low-cost investment opportunities to retail investors, told Wits Vuvuzela, “A comfortable retirement looks like being able to afford all the necessities and bills that come with life, plus some extra [money] to actually have fun with.”  

Nongauza said that to a large extent the shocking statistics on South Africans who are unable to afford retirement are caused by young people who never think about retirement because they tend to believe they will be young forever. Old age and all its limitations look like a distant destination until it is too late. 

Lebo Phiri, a financial adviser with the Liberty Group, a financial services provider, echoes the same sentiments as Nongauza. Phiri believes young people tend to limit themselves and believe that retirement is too far away, and as such, they hardly take financial advice seriously. “Young people do not buy into the idea of working now to fund a future lifestyle they might not even live to see,” said Phiri.   

Nongauza said, “If you die before you get to spend your money, then you probably won’t have to worry about spending anything”. He added that living in the now is a valid need and it is important to enjoy your hard work. “Life is short, so we have to enjoy it. But sometimes it’s not that short,” he said. 

Common misconceptions young people often hold include believing they will start investing only when they have enough money or when they start working. Nongauza suggests otherwise. He recommends starting at an early age because it cultivates consistency and good money management skills and habits. Every rand matters.  

Nongauza suggests that for young people to cultivate a savings culture, they must learn to say “NO” to themselves and their loved ones. “Enjoy your money, but budget for everything because when the chips are down, you are the only one who will have your back,” he said.  

It is not uncommon for young black professionals to be the primary breadwinners at home, and this can hamper their savings rate.  Managing the expectations of family members is the starting point in dealing with this, said Phiri. “It is important that young people are honest and transparent about their earnings from the onset. If family members are informed, they can be more reasonable about their expectations.” 

The Department of Social Development Affairs sought to address the alarming retirement statistics by gazetting a green paper proposing a mandatory 12% deduction from income earned. The plan was to put these deductions into a state–managed fund that would provide retirement, disability and unemployment benefits.  According to the department, 10% would go into a mandatory state–managed fund instead of a private one, while the remaining 2% would go towards an unemployment insurance fund.  

Plans for this new proposed bill were put on hold on September 1, 2021, when the department claimed in a statement that some aspects of the green paper had been misunderstood. 

Phiri suggests that forced savings are quite beneficial in the long run. “Investment vehicles that do not allow you to access your money until retirement are a great idea because you don’t dip into your savings when tempted,” she said. 

Making the right decisions about money and planning for the future can be difficult. Itai Dzinotyiwei, the head of public relations at the Wits Investment Society (Wisoc),  said the financial jargon used when discussing investments can be a huge deterrent. Dzinotyiwei told Wits Vuvuzela, “To gain clarity I would recommend the book, ‘Think Yourself Rich’, by Moroka Modiba to young people, especially [recent] graduates.’’  

It is important to know that when it comes to financial planning, there is no one–size–fits–all approach. There are a myriad of financial vehicles one can use to achieve a retirement free from money worries.  

Finance Gym is a platform dedicated to helping individuals and financial institutions engage on personal finance and improve financial literacy. Wits alumnus and Gym founder Sthandiwe Msomi said, “A business is one of the most lucrative investments any person can have. If done right, it can pay you and your family dividends in perpetuity.  

 “Regardless of your background, finances are a universal concept and determine how we get to experience the world.  A financially literate nation is an economically empowered nation,” Msomi said.

FEATURED IMAGE: Tipped money jar. Photo: Unsplash stock image

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