It’s not what you earn, it’s how you spend that determines wealth

2014-07-20 15:00

Check your cash flow to ensure it’s balanced in your favour, writes Maya Fisher-French

Lower-income earners are feeling the brunt of a weaker economy and higher prices, but research by Old ­Mutual suggests despite having more money, high-income earners are not as ­financially ­secure as one would expect

The Old Mutual Savings and Investment Monitor research around retirement savings confirms that South Africans remain underfunded in retirement.

In the survey, 39% of people said they expect their children to look after them in retirement.

While these figures were higher for lower-income earners (nearly half of those surveyed earning less than R14?000 a month expected their children to support them), even higher-income earners are looking to their children for support in retirement.

One in four people with a household income of R40?000 a month consider their children as part of their retirement plan.

More worrying is that 26% of households earning between R14?000 to R20?000 expect government to support them in retirement.

Considering that the social old-age pension is R1?200 a month, that represents a 90% drop in income.

Lynette Nicholson, the head of research at Old Mutual, says what is concerning is the amount of baby boomers who have not made provision for retirement.

Baby boomers are defined as people born before 1964 – they are close to retirement and therefore have little time left to prepare.

Of those baby boomers who were interviewed, nearly half expect to depend on their children in retirement.

Despite being close to retirement, Old Mutual found that in terms of savings objectives, baby boomers have decreased the amount they are saving for retirement.

Nicholson says in terms of savings objectives, retirement is now the lowest since 2009. This could be due to other financial commitments – nearly 60% of the respondents still support children and 23% of them support elderly parents.

Nicholson says many younger people are realising their parents are not going to be independent in retirement. Nearly 66% of those interviewed said they expect to have to support parents or elderly family members financially.

Our money trends

The Old Mutual Savings and Investment Monitor revealed some interesting trends around what we are doing with our savings:

Saving for Christmas

When it came to savings objectives, many of the people surveyed said they were putting money away for Christmas.

Lynette Nicholson, the research manager at Old Mutual, says there has been an overall increase in saving for the end of the year.

“I am not sure if people had a particularly difficult Christmas last year, but it is good that people are now preparing rather than going into debt.”

We are putting more into unit trusts

Nicholson was pleasantly surprised by the increase in the number of people saving through unit trusts. About 6% of all those interviewed said they saved through these products.

“This is the highest level since we launched the savings monitor in 2009. Around 18% of households earning R40?000 or more are using unit trusts to save,” says Nicholson.

This could be a sign of increasing financial literacy and also a shift by financial advisers away from selling life-linked investment products to more flexible investment-linked products.

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