Stokvels and their members can save money by carefully examining the fine print of financial products, says Nkasi Sokhulu, the co-founder and chief executive of credit life insurance brand Yalu.
Sokhulu says stokvels have been the savings “engine room” for South African communities since the apartheid era, and they remain very effective despite the country's troubling level of poverty.
He says that, according to research, 820000 stokvels collectively save R44billion each year, and more than 11million South Africans are members of a stokvel.
Sokhulu says there are many money management options for stokvel leaders to consider.
“These range from opportunities to take advantage of the better interest rates paid by investment accounts to shopping discounts offered by bulk buying. There's no question that, with smart decision-making, the group's money can be made to work harder, but for this to be true there has to be a careful analysis of costs versus rewards,” he says.
He says it is important to examine the fine print of any financial product for additional costs, including hidden monthly membership charges, along with additional line items buried in obscure “terms and conditions”.
“This is the golden rule for all financial products.You can win or lose a lot in the fine print, and if you have never even read this text or understood it, there's a good chance your collective could be losing money,” says Sokhulu.
He says stokvel members commonly contribute so they can receive financial help when there's a death or celebration in the family.
“In the case of a funeral, some stokvels help with groceries, while others can provide funds and let the family decide what to use the funds for in relation to the funeral or celebration. Other goals include month-end large-scale grocery shopping that is not necessarily linked to any event,” says Sokhulu.
He says stokvel members should understand the fine print of financial products such as credit life insurance, which members have when they take out credit.
Credit life insurance covers a borrower's debt in the event of retrenchment, disability or death, and is generally offered by the same financial institution offering the loan.
The premiums charged for such policies can vary, and many consumers find themselves unwittingly paying the maximum possible premium every month, whereas they could be saving more if they chose a different provider.
“As always, information is crucial. Because many consumers aren't aware of the details of their credit life insurance policies, they're losing out on potential savings every month, and this money could contribute significantly to their overall savings efforts. Once people understand this, they are more likely to take the simple steps they need to reduce their monthly commitments,” he says.
There are only two ways for stokvel members to improve their financial situation: spend less or save more.
“In both areas, paying attention to all the details of financial products and services can have a big impact on the individual, and therefore the group. If, as a broad South African society, we improve this skill, our stokvel heritage will grow stronger than it already is,” he says.
Sokhulu advises stokvel members do the following to prevent fraud:
* Considering that it's common for a stokvel to have a treasurer, it’s good practice for more than one person to have signing power on how and when money will be used.
* Members should agree in writing on what the purpose of the stokvel is, as well as the accounts in which the stokvel’s money will be invested.
* Investing the money in a bank is probably one of the safest ways to invest and avoid fraud and robbery. Money will grow faster if it is invested in an interest-bearing account.