SASISavings Round Table

Rhodes University26 May 2005

“A micro view”

Darrell BeghinFinMark Trust

FinScope & Financial Diaries

Making Financial Markets Work

Who and What ?

• Insights– consumer paradigms & realities– product consumption

• Questions & opportunities

Making Financial Markets Work

Consumer Realities - Income sources

12

2

2

4

5

8

9

9

9

17

30

0 10 20 30 40 50

Don't get money

Any other type of grant

Informal work

Other pension

Piece work

Government pension

Self-employed

Salary from an individual

Child grant

Salary from a company

Money from family

%

All 1%: Maintenance Private sale of goods Financial investments Gambling Lottery

On average, consumers claim to have only one source of income Almost one-third of the population obtains money from friends/family as their main source of income

Never banked 44%Black 32%

Currently banked 34%White 33%

Never banked 21%Coloured 14%

Average number of mentions: 1.1

(n=2988)

42

40

36

31

28

24

23

17

14

11

10

8

8

7

6

6

17

21

14

15

15

13

10

9

8

7

5

6

4

2

2

2

3

37

Theft, fire or destruction of property

Job loss of main wage-earner

Death of main wage-earner

Serious illness of member of household

Death of family member outside household

Illness so main wage-earner can't work

Flood destroying property

Death of partner

Drought

Stock/livestock theft

Increase in oil price

Loss of vehicle

Cut-off or decrease in payment to household

Abandonment/divorce

Loss of banking facilities

Loss of computer/laptop/cell phone/phone

None

Factors likely to impact finances Factors likely to happen

Consumer Realities - Household risks

After shelter, the next greatest threat is the loss of income from the main wage-earner of the household

Overall, there are many other concerns before loss of banking facilities becomes an issue

%(n=2 988)

Total sample

Factors likely to impact finances

32 43

34 40

35 35

24 31

N/A 27

21 23

18 24

N/A 17

10 14

8 11

N/A 11

6 8

9 7

6 7

4 6

3 6

29 17

2004 (n=2895)

%

2003 (n=2984)

%

26 2313 12 10 6 5 4 3 2 2

23

020406080

100

Consumer Realities – Coping with events

Only one in eight people believe that approaching the bank for a loan is the way to deal with financial life events

%

Friends/family seen as the first port of call in a crisis!

Ask friends/ relatives/ neighbours for money

Take loan from friends/ family

Take loan from bank

Withdraw savings/ invest-ments

Apply for govt. grant/ aid

Cash in insurance policies

Sell assets

Loan from employer

Loan from burial society/ stokvel

Apply for more credit

Use house/ property as security for additional finance

Don’t know

33 12 15 21 10 12 5 4 1 N/A 6N/A

23 14 13 11 6 5 4 3 2 226 22

2003 18+ (n= 1423)

2004 18+ (n= 1861)

Consumer Realities - Decision making16+ years

Don’t make these

decisions20%

Consultation with partner/

spouse33%

Decide alone25%

Consultation with other household members

22%

Source: Q34

Read: 25% of the total sample makes financial decisions on their own and 33% decide in consultation with a partner/spouse

58% of the population makes financial decisions on their own or in consultation with a partner/spouse - Financial decision-making increases with FSM tier - Also more prominent in white market and amongst banked segment

Non-decision making skews to younger consumers (75% of 16-17 year olds claim to make no household financial decisions) and to the never banked (36%)

Who are most likely to make decisions on their own or in consultation with partner/spouse?

Currently banked 73%Previously banked 61%Never banked 41%

Black 55%White 80%Coloured 56%Asian 63%

FSM 1 41%FSM 2 46%FSM 3 58%FSM 4 70%FSM 5 71%FSM 6 74%FSM 7 87%FSM 8 87%

(n=2988)

Consumer Realities- Perceptions re savings

10

19%

23%

31%

43%

47%

51%

55%

69%Save & invest regularly, small amounts mount

up and you'll be secure

You prefer to save where money is safe, evenif the interest rate/return is a little lower

You are worried that you won't have enoughmoney for old age

You don't trust informal associations likesavings clubs

You try to save regularly

You have a good idea of whatinvestment/returns you get on the money you

save

You go without basic things so that you cansave

You are saving for something specific

You move your money around, to get the mostgrowth

Consumer Realities - Savings psychographics

42%

47%

10%

86%

10% 4%

58%

31%

10%

54%

21%25%

19%

62%

19% 16%

43% 41%

46%

32%

22%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Agree Disagree Don't Know

Consumer Realities – Buying Triggers16+ years

55%

28%

5%

11%

1%

Ultimately, the monthly repayments are the deciding factor However, a quarter of FSM 8 claim that the interest rate must be the lowest possible Credit is not something that lower FSM groups really consider as an option

When deciding to purchase an item on credit, which one of the following is most important to you?

FSM 1 77%FSM 2 69%FSM 3 51%FSM 4 44%FSM 5 37%FSM 6 32%FSM 7 32%FSM 8 25%

Monthly payments must be affordable

Interest must be lowest available

Repayment period must be flexibleDon’t know

None of these – don’t purchase on credit

(n=2988)

Product Consumption - Ways of investing 16+ years

Overall low usage of mainstream investment instruments – bank savings accounts and burial societies dominate

2003 (18+)

(n=2984)

2004 (18+)

(n=2895)

39 39

24 21

N/A 10

9 7

N/A 6

5 6

4 4

N/A 5

3 3

4 33

3

4

4

5

6

7

9

20

37Savings a/c at bank

Burial society

Savings policy, endowment, insurance withinsurance company

Stokvel/savings club

Retirement annuities

Improving your home

PO savings account

Voluntary pension/Provident contributions

Starting a business

Buying or making goods to sell

%

50

Have now and use Never had

79

88

91

92

88

92

93

95

94

(n=2988)

Have now and use

60

16

15

6

5

5

4

2

2

4

Can't afford it

Don't want it

Never thought about it

Don't know about insurance

Don't believe in it

Someone else will pay

They make excuses not to pay out

Don't know how to find out where to buy it from

Don't know how to go about buying cover

Other

Product Consumption – No life insurance because…16+ years

Cost is the main obstacle to entry

Skew to lower FSMs 1-3

65% Black

69% Coloured

Skew to higher FSMs 43% FSM 8

One11%

Don't know5%

4-51%

2-39%

None74%

Stopped or cancelled

Product Consumption - Policy Cancellations16+ years

40

22

22

15

9

6

Could not afford it

Needed the cash

Policy matured

Found better interestoption

Retired

Other

Reasons

Black 22%

White 36%

Coloured 15%

Asian 31%

Three-quarters of consumers have not cancelled any policies – White and Asian skew Cancellations highest amongst FSM 8 – 38%

%

Highest for FSM 1-3 11% for FSM 8

36% for FSM 5 30% for FSM 6

34% for FSM 7 32% for FSM 8

29% for FSM 8

Product Consumption – Funeral/burial policies16+ years

One85%

Two-three13%

Four-five2%

One77%

Two-three20%

Four-five2%

Six or more1%

One86%

Two-three13%

Four-five1%

Funeral policy (individual) Funeral scheme (group) Burial society

Few differences between FSM tiers – differences occur in actual products rather than number of policies Slight tendency for FSM tier 8 to have multiple individual funeral policies

Product Consumption – Financial Services 16+ years

Almost half of the population does not utilise any product offering from any of the four categories - banking, retail, housing or loans

Tendency is to have just one product, which is typically a banking product

Banking only 25%

Retail only 3%

Housing only 0%

Loans only 2%

Banking, retail 13%

Banking, loans 4%

Banking, housing 1%

Banking, retail, loans 3%

Banking, housing, loans 2%

Banking, housing, retail cards

2%

Banking, housing, loans, retail

4%

42% do not have any service58% have a service

(n=2988)

Consumption & Reality meet in Lending 16+ years

13

6

5

4

4

70

0 20 40 60 80 100

Buy food

Pay school fees

Buy clothes

For funeral

Pay off debts

None

Black (n=1570)

36

34

12

9

8

37

0 20 40 60 80 100

Buy a house

Buy a car

Buy clothes

Pay off debts

Money to study

None

White (n=655)

17

8

5

5

5

60

0 20 40 60 80 100

Buy food

Pay off debts

Buy a house

Buy clothes

Pay for water or electricity

None

Coloured (n=559)

11

8

5

5

5

66

0 20 40 60 80 100

Buy a house

Buy clothes

Pay off debts

Repair/paint house

Buy a car

None

Asian (n=204)

%

%

%

%

Summary• Consumers are:

– Strapped for extra/enough cash, struggle and do without

– Concerned about death and loss of income & old age

– Not financially astute – consult friends and family– Varied in decision-making methods and using

improper triggers– Using savings for “credit vehicles” - save to pay for

living expenses – NOT asset acquisitions– Not all that smart about using credit – Using short term solutions and creating longer term

problems – e.g. forfeiting education to earn extra income

– Unable to save for unforeseen events – heavy impacts from extended family deaths

– Afraid to ask formally how instruments work– Not making the best use of available services

Summary

• Consumers:– Must be seen holistically – wallet split and

life stage– Cultural beliefs and aspects need to be

considered and managed– Also personal motivations– Need more income to move to “life asset”

savings activities– Should to switch from borrowing as

emergency first call to using savings – resource dependant

– Require education in money management – absence is reflected in “mis-spend” on informal & formal instruments

Summary

• Products:• Not well dispersed across the consumer market -formal

financial instruments are not as well used as stokvels at the low income end

• Stokvels tend to be used for a specific time or event

• Savings accounts are used as transaction accounts

• Formal products tend to be linked to formal employment e.g. provident funds

• Only 12% of the households seek a formal savings product without it being connected to their jobs

• Informal instruments provide a major social structure for consumers to interact with each other

• Money guarding is used as saving instrument but there is no accumulation of benefits

• Most informal devices offer poor returns on investments

Summary

• Products:– Inflexible- pricing, terms, applications, overlapping– Require urgent innovation and simplification, also for

small business savings– Offerings are confusing with little perceived benefits– Hidden within formidable Service Provider structures,

which are not easy to access physically– Need to move consumers from “consumption” saving to

“life improvement” savings and investments – huge opportunity

– Affordable savings & investment instruments required– Informal instruments are not offering adequate returns

and carry high risks– Informal & formal instruments could be closer – bank

accounts for savings clubs are purely entry level and more transaction based?

– Need to create a bridge from informal to formal instruments

And so….?

• What will/should Government do?• Will Business rise to the true market

challenges?• Where will Consumers gain extra income to

balance credit and savings utilisation? • Are Consumers up to the challenge? Who will

equip them, and with what? • Are you?

Thank you!

FinScope & Financial Diaries

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