Haroon Bhorat, Chair: Investment Committee at Sygnia
If you were asked what product South Africans prefer to invest in for retirement or sooner, what would you say? Standard retirement plan products? Property? Or perhaps tax-free savings vehicles? All wrong, unfortunately – and quite egregiously so. If you’re interested in the answer – please read on!
The answer lies buried in the South African Reserve Bank’s Payments study report of 2023, which examined the payment patterns and preferences of a nationally representative sample of about 3 000 South Africans. Participants were asked a series of questions, ranging from their payment methods (credit, debit cards, cash and so on) to what products and services they spent their income on and their knowledge of cryptocurrencies. The sample reflected a diverse national representation in terms of race and gender and suggested a profile of individuals with the capacity to invest. Average monthly household income stood at R14 000 and personal income at about R6 500 per month. Some 60% of the participants were employed or self-employed, and close to 70% described themselves as not being financially stressed. In essence, the mean sample individual reported a steady, moderate level of income with low levels of financial stress.
South Africans’ preferred investment choice in this sample is burial societies (35%), stokvels (20%) and then some form of bank savings products (18%). None of the more common products that readers of Sygnals might be familiar with feature significantly as investment choices. In fact, the report suggests that investment vehicles such as unit trusts, stocks, retirement plans and so on are in relatively low use by respondents, and only 4% of the sample made use of fintech investment solutions. The SARB publication does not even report the percentages for formal investment products, suggesting they are used by very few South Africans. The report does reflect that 56% of white respondents and 45% of Africans invest, and close to 50% of individuals with some high school education also reported investing. The data reinforce that a significant share of the investors in stokvels are not from one particular racial group, gender or educational cohort.
One key correlation in the figure below is that high levels of product awareness are linearly associated with investment in that product. The highest product awareness (burial societies) garnered the highest investment, followed by stokvels, the second-highest awareness product – clearly, awareness of a financial product is key to investment in that product.
A number of simple but profound deductions can be made from these data: firstly, awareness drives investment allocations. One must thus question whether traditional formal-sector savings and investment products are marketed appropriately and through the optimal channels to reach the average South African – these data suggest not. (One simple question: How many financial services products are marketed in an African language?) Secondly, the value of this potential market may be too low to represent a viable opportunity for the financial services industry. One could argue, though, that such mass based financial services opportunities require a very different, low-cost-driven model relative to traditional formal offerings. Such a model could be akin to the mass banking model offered by Capitec and is yet to be optimally tested for South Africa. Finally, there may be something of a path dependency in how business has been marketed in this industry, targeting only high-income formal-sector workers in traditional industries. Looking to innovation in this market segment, it may be worth exploring experiences abroad – in China and Chile, for example, where informal and lower wage workers have been brought into a formalised system of savings and investment through a combination of regulation, incentives and awareness-raising.
ENDS
