7 July 2009
Deputy Finance Minister Nhlanhla Nene says there is a need for financial literacy eduction in South Africa, as the country’s savings performance is disappointing.
Addressing the launch of Savings Month in Pretoria this week, Nene said there has been considerable belt tightening by both business and consumers due to the economic downturn.
Nene said the country’s gross savings as a proportion of gross domestic product (GDP) rose to 17.1% in the first quarter of 2009, up from an average of 15.4% in 2008.
“But even with the recent rise in South Africa’s savings rate, our savings performance remains disappointing.
“Our savings rate is low by international standards, and compares especially poorly to those developing countries with high rates of economic growth,” Nene said, noting that China’s gross saving rate was over 40%.
Aggregate savings decline
The country’s aggregate saving has been on a decline, following the drop in both corporate and household savings. The ratio in net terms for corporate savings, which represents the bulk of total savings, fell from 6.6% of GDP in the 1980s to 5.6% in the 1990s and to only 3% between 2000 and 2008.
“As a percentage of GDP, household savings has declined sharply over the last 15 years, from 3.2% during the 1980s to 0.2% between 2000 and 2008,” Nene said.
“As a percentage of disposable income, household savings has fallen from around 5.4% in the 1980s to 0.28% between 2000 and 2008.”
Increased household debt
As a result of this, household debt had risen steadily in recent years, and currently stood at 76.7% of disposable income. Nene said the low rate of savings was worrying, because inadequate savings left households vulnerable to shocks in income and prices.
“This has also hampered people’s ability to put down deposits for large assets like houses, thereby affecting wealth accumulation.
“Likewise, low levels of individual savings have add to the burden on government to provide retirement assistance, increasing the need to raise taxes for this purpose,” he said.