Bayport Blog

Saving creates national financial wellness

Did you know that our county’s economic health depends on how much we as households and individuals save? Now that’s financial literacy that opens your eyes!

Since March 1960, the SA Reserve Bank has been measuring a wide spectrum of economic indicators in South Africa. Among these, is the gross national savings rate, which measures the savings of government, companies and households.

The economic indicators are released every three months, and according to the latest numbers, our country has a gross national savings rate of 14,4%.

That doesn’t sound too bad, does it?

Except when we take into account that government spends more than it saves and that households – you and I – save only 0,5% of our income. This means that companies and businesses are essentially the only entities in our country that save.

According to the experts who compile the Investec GIBS Savings Index for South Africa, “a country needs to save its way to prosperity”.

When an individual or a households or a business saves, a reservoir of funding is created. This, in turn, becomes an economic engine for new factories, homes, highways, harbours and jobs. A country that has savings, doesn’t have to borrow as much from other countries and financial institutions to grow its economy.

If households shift their spending patterns from consumption (instant gratification) to financing productive investments, then the knock-on effects – in the form of spill over, multiplier and linkage effects – can be powerful. These savings can help build small businesses, promote employment intensity and unwind industrial concentration.

In simpler terms, saving is not only about your household having an emergency fund or staying out of debt – it is also about contributing to the health of our national economy.

Why are we so bad at saving? There is no easy answer to this question. The reason most often given, is that we don’t earn enough to save. However, when we look at other countries this does not make sense. Household savings in India and China, for instance, have averaged around 15% and 20% of GDP since 1990, respectively.

Here in South Africa, we have been saving less and less over the past 20 years, and currently households save almost nothing. Our savings rate is the lowest in the world.

Of course there are households that save, but the data shows that for every rand one household saves, another household goes into debt by almost the same amount. As our personal credit health declines, so does our country’s.

The experts say that saving is a habit we have to learn, and that you cannot wait until you think you have enough money to start saving. In fact, the evidence suggests that saving leads income, rather than income leading saving. The principle at work is that healthy money habits – notably saving – allow households to build wealth and financial wellness.

Therefore, start small, be consistent and make saving a priority. As your personal budget improves, so will our country’s national budget.

The good news is that you don’t have to figure it out on your own. Bayport’s Information Centre (click here) contains all the information and tools you need to build a savings habit that will allow you to create financial wellness for you and your family.