The latest Old Mutual Savings Monitor shows that South Africans are coming to terms with their new economic reality and taking control of their finances, but it’s still really tough to make ends meet.

As households come under pressure from rising costs such as a higher petrol price, electricity and school fees, many have no choice but to cut back on their lifestyle.

The Old Mutual Savings Monitor, an annual survey of the behaviours and attitudes to saving and investments of urbanised working South Africans, found that 72% of respondents are cutting back on their expenditure compared to 38% in the 2011 survey.

While households are clearly under pressure, people are feeling more in control of their finances than in previous years. Confidence in making financial decisions has increased from 6.9 to 7.2 when measured on a scale of 0 to 10. People also have greater satisfaction with their financial situation, and 50% feel that their financial situation will improve over the next six months.

Lynette Nicolson, head of research at Old Mutual, explains that while this information may appear to be contradictory, it tells a story of people coming to terms with their financial situation and starting to take control.

“People are feeling more positive not because they are saving more but because they are managing their money better, they are more in control. People are deciding not to go on holiday and rather owning their finances,” says Nicholson. The survey found that higher income earners are cutting down on luxuries while middle and lower income households are adopting more intensive budgeting and planning of their finances. “There has been a reality check; people are feeling less panicked but they are not yet thinking about the future,” says Nicholson, who says people are still focused on meeting their day-to-day needs.

Credit card repayments fall

While South Africans may be taking control of their finances and cutting back on expenses, we are also reducing our repayment of short-term debt, especially credit cards. Of those surveyed, 29% have at least one credit card and the number of people paying their cards off in full at the end of the month has fallen from 19% in 2011 to 13% in 2013, while 55% of those surveyed pay only the minimum amount due on their credit card. What many people do not realise is that the minimum payment barely covers the interest charged on a card and that it can take up to 30 years to pay off a R20 000 credit card balance even if you never spend a cent again on your credit card. By only paying the minimum due, you could still be paying that balance off in retirement.

The survey found that 62% of the respondents have at least one store card and 17% have a personal loan. The majority of these people are paying only the basic minimum repayment amount, as in most cases it is all they can afford. For individuals earning less than R14 000 a month, the number-one reason for taking a personal loan is to meet everyday living expenses.

Homeowners target mortgage payments

On a more positive note, there has been an increase in the number of people paying additional amounts into their home loan.  41% of respondents own their property and the number of homeowners claiming to pay extra into their mortgage each month has doubled over the last two years, increasing from 16% to 31%. While paying off your mortgage is a good financial strategy, this should only be a priority if you have already paid off your more expensive, shorter-term debts.

Less for children’s education

Saving for children’s education appears to have fallen victim to tighter economic times with a dramatic fall in the number of people with education policies – falling from 35% in 2010 to less than 20% this year. The survey also found that 54% of parents have no idea as to what the future costs of education will be.

Nicholson says they have noticed a decline in saving for children’s education over the last few surveys but it is definitely a trend now. “Education is a psychological priority but the reality is that putting bread on the table and paying rent is now the priority.”

Our dreams

The top financial goals for South Africans over the next five years are to buy property and invest in their own businesses. For the youth, having their own business is a significant priority with 28% saying they want to start their own business; this is a bigger priority for young people than buying a home or car.

Given the high rates of youth unemployment the focus on starting one’s own business makes sense, however Nicoloson says that as the youth surveyed were already working, the goal of having their own business is not about leaving formal employment but rather supplementing their existing income.  “This is what Dion Chang [trend expert] calls ‘the slashies”. People have their work and are also a DJ/yoga instructor – people are finding ways to generate additional income.”

Our challenges

The youth in particular will need to find additional forms of income as they are expected to be increasingly caught in the sandwich generation. The sandwich generation is a term used to describe people who are supporting both their parents and their own children. Among the youth the number of people caught in this sandwich of financial dependency increased from 14% to 17% over the last two years and this is only set to increase. Of the young people between the ages of 18 and 30 who were interviewed, 45% said that they were planning on supporting their parents one day and a further 16% said that although they were not planning on it, they probably would end up supporting them.

This trend is confirmed in the general survey which found that 38% of people believe that their children will take care of them in retirement, which is up from 26% in 2010 – this suggests that people have had less opportunity to save for retirement than they hoped. The prevalence of dependency is greater among lower-income earners with 51% of people earning less than R6 000 expecting their children to support them while 50% say government will support them.