Rich or poor, you need financial advice

A number of South Africans believe they don’t have enough money to warrant consulting a financial advisor, research released by Old Mutual reveals.

Asked why they had not consulted a financial advisor about their financial affairs, responses went along the lines of, ‘my standard of living doesn’t require a financial advisor’; ‘I haven’t had finances to think of consulting an advisor’; and, ‘I don’t have enough money to invest’.

Even more concerning is that 39 percent of the 1,000 odd respondents in Old Mutual’s Savings and Investment Monitor said their main source of financial advice is a bank consultant. This is in all likelihood an individual with no formal financial training, let alone a FAIS-accreditation as per the Financial Advisory and Intermediary Services Act, which allows them to give advice in the first place.

Twenty-one percent said they turn to any financial advisor for financial information; 18 percent go on word of mouth; and 27 percent have no budget at all. Nearly 60 percent said their main reason for not consulting a financial advisor was because they felt that they did not have enough money.

Discussing the findings of the ninth annual Savings and Investment Monitor on Tuesday, Rian le Roux, chief economist at Old Mutual Investment Group South Africa (OMIGSA), said that contrary to popular belief, people with less money have the same if not more of a need for financial advice as the wealthy.

Granted, the nature of this advice will be very different from one income group to the next, but whether you are earning R5 000, R50,000 or R500,000 a month, the importance of managing your money well remains consistent.

And yet more than half the respondents whose household income was below R6,000 a month had no formal retirement savings whatsoever. This dropped to 39 percent for the R6,000 to R14,000 a month category, while a quarter of those with household income between R14,000 and R20,000 had the same dire retirement prospects.

Twelve percent of respondents with household income of R40,000 and above were not contributing to a pension fund, provident fund or retirement annuity.

Source: Old Mutual Savings and Investment Monitor, July 2014

According to the Monitor, more people overall are saving for funeral expenses and Christmas/end of year. Fewer people are saving to buy a car, reduce debt and invest in property. While those earning more than R40 000 a month are saving more for retirement and old age, the baby boomer generation (born in 1964 and prior) earning below R40,000 a month is saving considerably less for retirement, with saving at its lowest level since 2009.

Savings and investment in unit trusts featured only in the upper-income groups, where they had shown a significant year-on-year increase.

Contributions to funeral policies and informal savings vehicles (stokvels, burial societies and grocery schemes) have grown. Old Mutual’s 2013 estimate for the size of the stokvel market was R45.1bn, up from R38.6bn in 2011. The average amount contributed has grown from R520 to R683.

“Those earning less than R6 000 a month are contributing on average R405 to a stokvel, which as a percentage of income is quite high,” said Lynette Nicholson, head of research at Old Mutual. This went all the way up to R1 279 for those earning R40,000 a month and more.

How would you spend a windfall?

Old Mutual asked respondents what they would do with a windfall, both of their monthly salary and annual salary. The results are interesting:

While some people genuinely do not have enough to save and can barely get by on what little they do earn, Le Roux said there is a widespread problem of people not saving even when they should be able to save.

“I get the sense that people have simply not gone to the trouble to have a financial analysis done for them,” Le Roux commented. He said this could result in them neglecting certain basic savings principles, such as the need to contribute more every year to their child’s education policy in order to ensure it outpaces education inflation.

“Financial management should be a subject at school,” Le Roux said. Source:  MoneyWeb.