29/03/2018 11:38 SAST | Updated 29/03/2018 11:38 SAST

Tax-Free Investments: What's Holding South Africans Back?

It's not just over-indebtedness.

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Many South Africans — especially lower- to middle-income South Africans; the intended target market — are yet to fully benefit from tax-free savings vehicles that were introduced by National Treasury in 2015.

This is the view of Lisa Airey, a strategy analyst with Old Mutual Unit Trust.

Even though 69 percent of South Africans had access to formal financial services in 2017, as revealed by Finscope — a research tool used to assess the utilisation of financial services around the world — only 15 percent are currently saving, according to Old Mutual's Savings and Investment Monitor for 2017.

This is also despite the financial-services sector's investment in the education of the public and its clients about these tax-free savings plans.

Airey believes this discrepancy between knowledge, access and action suggests a systemic problem in the country — and until the following key issues are addressed, household savings across all income levels will not increase, and savings vehicles will not be fully utilised.

  • Low rates of financial confidence

Airey is of the opinion that South Africans display low rates of financial confidence when it comes to making savings and investment decisions, partly because they feel financial-service providers complicate their offering.

"Investing continues to be seen by South Africans as a complex world. Lower-income earners tend to feel less confident about making financial decisions, and feel confused or intimidated by financial-service providers and the options available to them."

  • Indebtedness

Another big concern is the high rate of indebtedness experienced by South Africans. "The Monitor revealed that South Africans spend 16 percent of household income on paying back personal loans and credit cards. This leaves little disposable income for saving and investing."

"Debt levels and financial stress continue to be closely linked. 64 percent of respondents described their stress levels as 'overwhelming' with a higher concentration in low-income households."

  • Poverty

Lastly, despite access to a widened social-grant net, the poverty rate in South Africa has increased. 30.4-million of South Africa's 55-million citizens in 2015 lived in poverty, Stats SA revealed last year — that's 3-million more than in 2011.

"All these factors — low rates of financial confidence, indebtedness, and poverty — create a vicious cycle, leaving South Africans with just enough money to make ends meet, but insufficient means to build any form of financial resilience or wealth."

"Only through public-private partnership can we hope to holistically address the underlying socioeconomic problems that drive our poor savings culture," said Airey. "While sound policy and the introduction of tax-free savings and investment vehicles are a step in the right direction, the financial services sector will need to augment its offering to meet the needs and challenges of ordinary South Africans."