The savings rate in South Africa needs to be addressed urgently when it comes to young people, according to Jason Garner, Management Consultant at Acsis, a financial advisory company. He says that a lot of young people under the age of 25 enter the labour market each year, and it’s vital that they execute a financial plan as soon as possible, before they are used to spending their monthly salary. He further states that young employees should start saving towards future financial goals, and realise how crucial it is for them to understand how a financial plan needs to grow and evolve with time and one’s career.
DESTINY had a chat with Garner about the importance of saving.
When should young people start saving?
As soon as possible! Most of the youth believe that they should start saving when they start earning a salary, but the truth is that you should learning the habit of saving much earlier. You should be developing a habit and culture of savings from a young age. The principles of savings are learnt from an early age, from parents and grandparents. This means that we as parents of the younger generation need to lead by example and start by showing why saving towards our futures, goals and financial ambitions is so important.
Where and how should one start saving?
Before we can realistically answer the question of where we should be saving, we should rather ask ourselves what we are saving for. For many younger people, the belief is that we really need to start saving for our futures at a later stage. The reality is that our future is anytime from the present day. This means that saving for our future does not mean just saving for our retirement. It means having a broad view of what we want our future in short-, medium- and long-term to look like, then plan and save accordingly. Should you need help with developing this plan, you should engage with a qualified financial planner to help you develop a financial plan.
Once you know what you are saving for, you can decide what investment option works best for you in order to achieve your financial goals. In order to understand the investment option, you will need clarity on the following to make an appropriate decision:
1. The terms of the investment
2. The risks you are taking with the investment
3. The expected returns of the investment
4. The behaviour of the investment over the expected term of the investment
5. Is the investment legally compliant and regulated?
Should one pay off debt first and then save later or can you do both?
Essentially, if we are paying off debt we are in fact saving by reducing the amount of interest we are paying to the respective institution we have borrowed the funds from. That said, if we find ourselves perpetuating our debt problem by settling debt merely to replace it with more debt, then we need to reassess our financial plan and objectives. The primary purpose of settling debt should be to reduce our dependence on debt to fund our lifestyles and to improve the possibility of saving more.
What is the importance of saving and investment education in our country?
This is by far one of the most important factors for us to be aware of as future savers and investors. It is our responsibility to our future financial success or failure and the only way we can possibly achieve this is to be aware of the consequences of the financial decision we are making and the impact these decisions will have on the success or failure of our future financial wellbeing. Never make a savings or investment decision without fully understanding its consequences. If you ever need guidance on making the correct decision, engage with a qualified financial planner who will be able to assist you in the decision and education process.