Global payments technology company Visa today (February 4) released the results of its first annual Wealth Worries Survey 2013, one of the most comprehensive reports into middle class South Africans and their money.
The report surveyed 2000 people across the country who have household financial decision-making responsibilities. The report was designed to uncover attitudes and behaviour toward money matters and identify areas where South Africans are putting themselves at risk.
· 52% say they’ll never be financially free
· R7283 is the average amount spent paying off debt each month
· 65% think the global economy will stay the same or get worse in next 5 years
· 20% think the Rand will dramatically depreciate over the next 5 years
· 27% feel that the political leadership in South Africa rather than the crime (17%) is a pressing issue that requires attention and resolution.
· 52% currently own property, 64% say that they will have paid off their house by the time they retire.
· 29% say that their level of debt is the single biggest threat to their wealth
· 20% have no investments at all, 19% saving zero for retirement
· 53% say property is the asset most likely to make them wealthy
· 15% do not plan on ever retiring; but 85% of those who are planning to retire are currently saving for their retirement
· 32% are most likely to look to a financial advisor first when investing in a new asset. 21% would look to their spouse or partner for advice first
· 71% are planning on leaving an inheritance for their family. Only 2% plan on not leaving any inheritance at all
· On average, those who give to charities give R5 843 every year
· 13% of these individuals plan on retiring outside of South Africa
· 94% say good education more important than leaving their children an inheritance
· The majority (58%) would pay off all their debt if they won R5 million
Visa Country Manager for South Africa Mandy Lamb said the survey was carried out to gauge middle class South Africans’ approach to money and wealth creation.
“South Africa, and indeed the whole world, has gone through a very tough time over the last few years. We wanted to assess attitudes to money, flag areas where people are putting themselves at risk and help people grow and protect their wealth.”
Visa teamed up with personal finance expert Maya Fisher-French to add her comments and advice to the findings.
Financial freedom and retirement
Asked whether they will ever be financially free, 52% said they would never be, while 46% said they thought they would achieve it.
Two percent said they already are.
Of those who think they will one day be financially free, 68% said they would only achieve this after the age of 50.
“Realistically most people would aim to be financially free later in their lives once they have paid off their mortgages and their children have grown up. What is important is to have a plan to get there. If you want to be financially free by a certain age, it won’t just happen – you need a plan,” said Fisher-French.
Interestingly, 60 is the average planned retirement age. But 15% say they will never retire. Thirteen percent say they will retire at 50 while 41% say they will retire at 65 or older.
“Most people are adjusting their idea of when they will retire as we start to live longer. Many 60 year olds are still fit and healthy and contributing to the workplace and delaying retirement is also one way to boost your retirement funds. If you delay your retirement by just three years you can increase your income in retirement by 20%,” said Fisher-French.
Eighty seven percent said they would retire in South Africa while 13% favoured retiring abroad, with Europe and the UK the top choices.
“If you plan on retiring overseas it is important that you ensure a portion of your investment portfolio is invested overseas as that is where you will draw your income,” said Fisher-French.
Looking at retirement savings, South Africans have various ways of putting money away for their golden years. Sixty four percent of people have their own retirement annuity (RA) or provident fund.
Fifty eight percent have a company retirement fund, 25% have property, 15% said investing in their own businesses and 8% said they put money into unit trusts they have chosen themselves.
Of those saving, the average amount saved each month is R2699.
Worryingly, 19% said they had no retirement savings.
Fisher-French continued: “While 81% of respondents are saving for retirement, research suggests that many South Africans are undersaving for retirement. One needs to do a proper assessment as to whether your retirement savings are sufficient before it is too late.”
She added that people who are using their own business as a retirement vehicle need to be careful as a small business can be high risk. An economic downturn at the time of retirement could severely impact the value of the business and the ability of the owner to sell.
“Business owners need to have retirement savings separate from their business.”
When asked what assets they own, 52% of respondents said property, the highest of any asset class.
This was followed by fixed income deposits (37%), while 25% said they held shares.
Nine percent held bonds, with 8% holding investments in private equity. Other investments included commodities (6%), alternative investments such as art (3%) and hedge funds (2%).
Alarmingly, 20% have no investments whatsoever.
A further analysis of people who have invested in shares showed various methods with unit trusts proving the most popular vehicle (47%). Thirty six percent had invested directly in shares through online platforms, while 26% have a fully managed portfolio with a stockbroker.
Only 16% of those who invest in shares have invested in Exchange Traded Funds (ETFs) while the same number have invested with advice from a stockbroker.
“The relatively low take up of exchange traded funds suggests that South Africans still believe in active fund management despite higher fees and the fact that many fund managers fail to outperform the index,” Fisher-French noted.
The debt monster and wealth threat
When asked about the biggest threat to their wealth, 29% cited “debt levels”, the biggest proportion by far. Eighty nine percent of respondent said they had debt with an average repayment of R7283 per month.
Next were was inflation (19%), the global economy (16%), political uncertainty (14%), employment uncertainty (14%), poor investment returns 5%, their kids (2%).
“Excessive debt is without a doubt the biggest hurdle to wealth creation and is often the main reason people are unable to save. Unfortunately debt accumulation is often a matter of hindsight; most people over the age of 40 will tell you that if there was thing they would re-do, it would be to take on less debt,” said Fisher-French.
When quizzed on what assets are most likely to make them wealthy, a whopping 53% said property. Seventy percent said they had one property, 12% said they had two, while 3% owned 2 or more.
This was followed by shares and owning your own business, both at 15%, commodities at 8% and private equity investments at 4%.
Fisher- French said: “It is an interesting perception that residential property is a better long term investment. Apart from the mid-to- late 2000’s residential property has not performed particularly well relative to shares.
“It is also an illiquid asset and difficult to fairly value,” says Fisher-French, who added that because property is not priced every day, as is the case with more liquid assets like shares, people may have the sense that it is safer.
The big picture and South Africa
Middle class South Africans are skeptical about the global economy, with 65% saying it will stay the same or get worse over the next 5 years.
Only 4% think it will make a strong recovery.
Fifty three percent think the Rand will lose value over the next 5 years against hard currencies like the US dollar. Only 17% think it will appreciate.
Perhaps paradoxically, only 11% have assets in a foreign currency.
“South Africans tend to have too little exposure to offshore assets, especially considering that the country only makes up 1% of the world’s economy. Unfortunately people tend to rush to take money offshore after the Rand has had a tumble rather than seeing it as part of a diversified portfolio strategy.”
When quizzed on the most pressing issue South Africa needs to resolve, political leadership was ranked top at 27%. This was followed by job creation (26%), crime (17%,) poverty (13%), education (12%), infrastructure (3%) and better race relations (3%).
Kids and legacy
Seventy-one percent of those surveyed said they planned to leave an inheritance. Eleven percent said they would like to leave a legacy to their kids but won’t afford to.
Two percent said they would spend all their retirement money and leave nothing to their family.
The balance – 6%- said they plan on leaving some to their families and some to charity.
Notably 94% of people said giving their kids a good education was more important that leaving a will (6%).
Sixty nine percent of people have life cover but only 57% a will.
“The rising cost of education is definitely having an impact on the ability of parents to save for their own retirement. It is very important to have a savings plan in place for a child’s education as school fees escalate ahead of salary increases,” said Fisher-French. She adds that all South Africans should have a will, but if you have children it becomes an imperative.
Advice and money
Before making investment decisions, only 32% of people said they would consult a financial advisor.
This was followed by a spouse or partner at 21%, the internet at 16%, family and broker both at 10%, newspapers at 6% and friends at 3%.
“This is a real concern for the advisory industry which needs to ask why people are not looking for professional advice,” noted Fisher-French.
La Dolce Vita
When asked what they would do with a R5m lottery win, people were very prudent.
Fifty eight percent claim they would pay off all their debt, while 15% say they would invest some of it. Ten percent would buy a house, 6% would invest all of it, while surprisingly 5% say they would donate some to their place of worship.
Only 1% would go on a shopping spree.
“A ‘winning the lotto’ question is always useful in highlighting ones priorities. What is important is to realise that you do not have to win the lotto to pay off your debt. You just need a budget and a plan and to stick to it,” added Fisher-French.
The survey revealed that South Africans are very willing to give to those less fortunate than themselves, with 70% saying they give to charity.
And on average those who do give to charity give an average of R5843 each year.
Forty seven percent of those who give to charity give less than R1000 each year.