Creating a savings culture in an emerging market

The burning question on the lips of many financial institutions in South Africa is “How do we encourage people to save long term?”

Let’s go back a step and start by asking the question “What does saving actually mean?”  BVA BDRC South Africa has done a fair amount of research on this subject over the years for banks, long term insurance companies and investment houses.  The short answer is: saving means different things to different people.

For the blue collar worker earning minimum wage, saving can mean putting R10 aside at the end of the week to buy a chocolate treat for her grandson, or putting R20 under the mattress for a rainy day.  For this person, ‘saving’ can be very, very short term.

For those financially able to think beyond their basic weekly or monthly needs, the mental framework for saving often relates to achieving a short or medium term goal – saving for a new washing machine, a holiday, a car.   The financial vehicles used for this type of saving are often easily accessible – typically a bank savings account – so that if a more pressing need presents itself, the original savings goal can remain on the ‘wish list’ for a little longer.

Longer term saving, for retirement, for example, in vehicles which are less readily accessible, requires a lot more discipline.  And, let’s face it, there always seems to be a more immediate demand on disposable income – house repairs, car maintenance, the children.  In an emerging economy characterised by political and financial uncertainty, long term investment is a commitment which some people are reluctant to make of their own accord (and one of the reasons why employer provided retirement funds are so essential).    It is not surprising, therefore, that many South Africans leave retirement planning too late to have any meaningful impact on their retirement outcomes.

So, how do we encourage people to save long term?  Let’s first start by encouraging them to save.

Research reveals a few key insights:

Firstly, saving is largely learned behaviour.  Children learn about saving (or the lack of it) in the home environment from an early age.  If there is a savings culture in the family, this is often passed onto the children.

“My mom opened a children’s savings account for me at the Post Office when I was about five and they gave me a free piggy bank. I used to put my pocket money and birthday money in there and I suppose that’s how it all started.”

Financial services providers need to look at ways to influence or support savings behaviour in the home.

Secondly, financial speak is a big turnoff.  For consumers to engage, they need to understand the products they are being offered.

Keep the language simple.

And, in the African context, where there are often multiple languages spoken in any given country, communication in multiple languages is advantageous.

In the words of Nelson Rolihlahla Mandela:

"If you talk to a man in a language he understands, that goes to his head. If you talk to him in his language, that goes to his heart."

Thirdly, consumers relate to concepts which speak to their own experience or day to day realities. When discussing saving in a research context we often hear respondents recounting their own experiences of debt or financial hardship, or those of older relatives who have struggled financially in later life, or aspirations for their children to have financial security, as key motivators for saving, even when money is tight.

“We never had any money in our house. My parents had no clue about saving.  It was always a struggle for them to make ends meet.  When I started working I decided I was going to put a bit aside each month no matter what.  I didn’t want anyone knocking on my door telling me I owe them money.”

There is clearly no “one size fits all” approach to building a savings culture in South Africa, nor is it realistic to expect a change in culture overnight, but there are certainly opportunities to sow the seeds of aspiration in the minds of young South Africans and provide them the savings tools to get there.