As 2020 ends, Alexander Forbes addresses the financial needs of South Africans by focusing on their financial well-being journey and not just the end game of retirement.
In many South African households, the income earner’s responsibilities stretch beyond just themselves, spouse and children and therefore the lens of responsibility for South Africans is complex and impacts the income earner’s own spending and savings patterns.
Dolana Conco, regional executive at Alexander Forbes Financial Services, explains that there is no such thing as “average” in Africa; African nations rank the highest on the diversity index with South Africa ranking 8th on the list. This suggests the “conventional retirement savings models” simply do not apply effectively to everyone.
South Africa’s social structure is characterised by low wages, at times a fractious society, with deep social and material vulnerability. This presents significant challenges in designing and implementing policies that will address the retirement income needs of all South Africans.
“The lens of responsibility for a South African income earner can include a divorced sister, wife’s parents, school-going brother, college or varsity aged child, daughter’s child and a matric aged child,” says Conco. This is vastly different from the developed economy’s nuclear family, consisting of a husband, wife and on average 2.2 children who have become financially independent by the time the breadwinner retires.”
Finding a life partner, starting a new job, having children and buying a house are all touchpoints that create opportunities to engage with employees to meet more of their needs at the right time to improve financial well-being.
Conco offers the following solutions to enhance the financial well-being of South Africans:
Employers can add value
Providing funding for housing, education, health, risk, and retirement can consume up to 86% of annual income, but an integrated employer offering can reduce this to 40%. Employees are inclined to prefer higher take-home pay; however, the employer must explain the benefit employees will derive from each deduction.
Conversations with family
Find collaborative solutions by discussing how to optimally manage the impact each decision will have on the family. In South Africa, a far better indicator of whether people can retire comfortably is the level of family or community support they have to reach this objective.
Use teachable moments
There are moments in time when people have a higher vested interest in listening to and learning about what they need to know so that they can act on it. A person’s first job is full of teachable moments, as the employer bears the responsibility for supporting good savings and spending habits that may well remain with these employees for the rest of their lives.
Just-in-time education
Provide ‘on-tap’ information just when people are making a financial decision and need to learn more about that activity.
Translate into the present value
We need to be able to translate decisions that only begin to affect an individual’s life in the far distant future, into some present value for an appropriate comparison. In other words, if I do this today, even though it won’t affect me until 20 years from now, how do I translate that financial value into today’s terms?
Trade-offs
Individuals need to understand the trade-offs between options: if I cash in my retirement money to buy a new car instead of keeping it invested when I change jobs, how will that affect me over time?
Financial education
Providing comprehensive, high-quality education and information enables South Africans to make sound financial decisions. A commitment by parents, schools and financial services companies to provide financial education to previously disadvantaged communities needs to be part of the fabric of our financial services companies.
Financial inclusion and technology
It is key to engage all South Africans in the savings debate – one way to do this is by embracing technology. People aim to first meet basic needs, then seek to meet successively higher needs.
Individualised solutions
Introduce solutions that better address an individual’s specific circumstances. We must understand what incentivises people to make the decisions they do and how we can capitalise on this understanding to empower individuals to make informed and outcomes-based decisions. In addition, we need to have some insight into what the right solution might be for an individual at each of life’s key milestones.
“To create a well-being society, all stakeholders – government, policymakers, financial services industry, employers and individuals – need to start with what is uniquely South African about our multi-dimensional challenges to come up with homegrown solutions. It is clear that we cannot dream of achieving a well-being economy without also addressing socio-economic and structural challenges,” concludes Conco.
PERSONAL FINANCE