The South African Savings Institute has noted the December 2017 SARB Quarterly Bulletin numbers, which reveal household savings to disposable income at 0.2% per month, meaning households are saving 0.2% of their income. This represents a positive savings ratio from the last quarter of 2016, and it means that South Africans are starting to save again. Debt to household income remains stubbornly high at 72.5% in the same bulletin. Although these numbers paint a gloomy picture, they still represent improvements from record highs for debt to income of 80% in the second quarter of 2013 and a savings of -2.3% in the last quarter of 2012.

South African households are saving again. By saving, this means that the wealth creation cycle has restarted. Although the numbers are still low, they are moving in the right direction and these numbers represent cumulative efforts by national treasury and the financial sector at large over several years. Many people have also learnt the hard way the importance of saving!

It is hoped that with the economy expected to recover from 2018 in a five-year economic cycle, this bodes well for wealth creation in South Africa. The environment is becoming more favourable to saving.

Savings behavior

According to the 2017 Old Mutual Savings and Investment monitor, there is an ever-growing “sandwich generation” who are saving less and less. The sandwich generation is those individuals aged between 31 and 49 who are caring for children as well as elderly family. This generation should be saving, but most of their disposable income is spent on current financial responsibilities and debt. Many also refer to this phenomenon as “black tax”, a non-formal tax on black South Africans who are still not in the habit of saving, or living lifestyles that don’t encourage saving.

Tax-free savings

The South African government through national treasury is trying to encourage individual savings, and introduced Tax-Free Savings Accounts (TFSAs) in 2016. All proceeds, which includes interest income, capital gains and dividends from these accounts, are tax free. Individuals are allowed to open two tax-exempt savings accounts per year. These accounts can invest in equities, fixed income accounts or both. However, the total contribution per year that qualifies for an income tax exemption is R33 000 on interest earned, up to a maximum of R500 000 per lifetime, though the account balances including interest can exceed R500 000 in a lifetime. Any amounts withdrawn from these accounts cannot be replaced and still get the exemption.