south africans and saving no good combination
10 July 2008

South Africans suck at saving. While the government and companies are doing  It's obvious that saving for future needs like retirement is good for individuals, but did you know that savings also benefit the economy as a whole?  Have you ever wondered why our interest rates are so high when compared to most other countries?

It's not Tito's fault and it's not the fault of inflation targeting. We have only ourselves to blame!

Household savings are the main domestic source of funds to finance capital investment the lifeblood of long-term, sustainable economic growth. Every proposed hospital, shopping centre, bridge, road, high-speed train or whatever needs this investment capital to become a reality. Savings by South Africans is a source of capital from which such job creating projects can be cheaply financed.

However, if we have no funds of our own to use for these investments we have to get it from abroad in the form of foreign investment or loans. To attract this investment we have to offer good returns and that means a high interest rate.  Our low savings rate necessitates high interest rates. There's no other way.

High interest rates don't only squeeze borrowers but also impact negatively on our competitiveness as the higher cost of capital results in a higher cost of production. If we want lower interest rates and a strong economy we need to spend less and save more. But instilling a savings culture in adults is not easy which is why the South African Savings Institute's theme for savings month, which happens each July, is 'Teach Children to Save'.

There are life-long benefits to teaching children good money habits and mounting evidence suggests that instilling habits like saving at a very young age, from about five years old, is the key to taking those lessons into adulthood.

We need to teach our children by example our future prosperity depends on it!
Until next week...

Kabous le Roux
Personal Finance and Property Editor
iafrica