An exploration of the determinants of South Africa’s personal savings rate - Why do South African households save so little?

Abstract

Savings plays an important role as a national buffer against international capital fluctuations and as a critical ingredient for economic growth. South Africa has a low national savings rate by international standards, an outcome that has flowed from a declining trend in domestic savings in recent years, to the point where the South African Reserve Bank reported that households had started to dis-save during 2006 and 2007. In view of the importance of savings, the state of South African savings is cause for concern. The determinants of household saving have been examined extensively in the literature on savings behaviour. The application of the theoretical determinants of savings to specific economies, however, has been the subject of debate as a result of the dynamic nature of savings behaviour and the fact that the interaction between theoretical savings determinants (and therefore the anticipated savings behaviour outcome) is influenced by country-specific social, demographic and economic conditions. Accordingly, this paper seeks to distil the determinants of South African household savings behaviour with reference to the expert opinions of South African economists, to gain an understanding of the actions to be taken in order to improve the savings behaviour of South African households. The key findings of the study indicate that South African household savings are impacted negatively by the prevalence of an aspirational culture in which consumption is encouraged by access to credit facilitated by South Africa’s sophisticated financial sector. In addition, governmental policies with regard to wealth distribution and welfare payments contribute to the creation of a culture of dependence and a reduction in household savings. The outcome of the study has various policy implications, including the proposals that government should be engaged to increase financial education of consumers and that the use of fiscal tools (such as tax incentives to encourage savings) and compulsory savings schemes, should be considered. Copyright