Many consumers argue that they are unable to save due to being in debt or the high cost of living. July has been declared National Savings Month and the theme this year is “Celebrating Savers and Savings”. With this theme in mind, the Credit Ombud wants to encourage consumers who have not yet started saving, to embrace the call to become part of the “celebrated savers”, says Nicky Lala Mohan, the Credit Ombudsman.

South Africans are notorious for their lack of saving on the one hand, and on the other, we are regarded as the most over-indebted society in the world. Not a reputation to be proud of, but more importantly, it negatively affects the daily wellbeing of most of the population. One such example is pensioners.  It is hardly possible to survive for a pensioner who only receives a monthly state pension. “People should realise that the only way to avoid extreme poverty in their retirement years, is to save towards an additional pension from a young age”, adds Lala Mohan.

In today’s challenging economic landscape South Africans it is very difficult to foster a culture of saving, and in this sense, “saving” is used to describe two slightly different actions. On the one hand there is pure saving and on the other, there is investing.

Saving is putting money away for future use for relatively short term goals such as a holiday or your child’s education, for an emergency fund or even to pay of smaller debts. Investing also involves putting money away, but for long term goals, such as your retirement and saving money with the objective of earning a return.

“Both aspects need to be taken into consideration by consumers” says Lala Mohan. “Fortunately many consumers are forced to save towards a pension through compulsory deductions for a pension or provident fund, and this is a good thing. However, this will not assist with emergencies or prevent consumers from entering into high interest credit agreements for short term expenses”, continues Lala Mohan. The aim for every consumer should be to have some savings to prevent them from falling into a debt trap when there are emergency expenses, such as medical expenses, motor vehicle repairs or even school fees. Too many consumers turn to short term, unsecured credit to fund these type of expenses, because they do not have any savings. Most short term credit agreements charge a very high interest rate and if those payments are not made on time, it could lead to a much bigger debt that takes years to pay off. “ We have seen thousands of consumers who ended up with debts that took years to pay off, often through deductions from their salaries, just because they entered into such a micro-lending agreement and due to circumstances, they could not make the payments on the due date as per the agreement”, says Lala Mohan.

Not all debt is bad and it is sometimes inevitable, especially when looking at purchasing a home, which is an asset. However, short term debt such as credit cards, retail store accounts and those high-interest bearing micro loans, can be avoided if we consider saving before spending. The message is that South African consumers need to get into the culture of living within their means. More often than not, consumers give no thought to saving for a purchase, or to the amount they will save if they make a cash purchase. It is too easy to immediately satisfy their wants and needs through credit. Purchasing an item on credit could end up costing you more than double the amount of the original cash price.

The Credit Ombud knows the struggles of consumers who have too much debt and of  those who simply could not afford the payments on their credit agreements and it is often heartbreaking to hear how these issues troubled their lives.  We therefore encourage consumers to start saving as soon as possible, in order to reap the benefits someday soon.

Our office would like to provide consumers with the following tips to help them save:

• Set a goal – determine what you would like to save towards, consider how much you would need to achieve this goal.
• Budget – they key is to understand how you spend your money every month and then to identify how to change your spending to start with a savings plan.
• Set aside a small saving to begin. Don’t wait till you are debt free or have lots of money to save, because then it will never happen.
• Cut back on unnecessary expenses that could hinder you from achieving your savings goal.
• Set up a monthly stop order to help you save automatically every month.
• Involve your whole family in the process as can help to teach your children the habit of saving as well.
• Identify which rewards system, bank account or tax-free savings account will assist you to achieve your new goals.
• Choose the ideal savings or investment tool for you and consider consulting a financial adviser or banker for guidance.
• Once you have a little bit of savings, consider which debts you can settle in order to become debt free. For example, debt collectors are often willing to accept a discounted settlement amount in exchange for an immediate cash payment.
• Pay the debts with the highest interest rates first, and then continue in this manner till you are debt free.
• Once you pay off your credit cards with hard earned savings, don’t keep them lying around, but close the accounts so that you cannot be tempted to use it again.
• Reward yourself in some way (add this to your monthly budget) for the discipline and sticking to your plan to achieve your new savings goals!