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MIDDLE-INCOME CONSUMERS SPEND 25% OF TAKE-HOME INCOME TO PAY INTEREST ON DEBT
South Africa’s middle-income consumers spend on average 25% of their take-home monthly income to pay interest accumulated on debt.
This is according to FNB’s analysis of money management behaviour of its retail banking customers who earn between R7 000 and R60 000 a month. The bank defines money management as one’s ability to allocate income adequately to meet short-, medium- and long-term financial commitments and goals.
FNB says its data paint a picture of households that are heavily reliant on unsecured debt to get through each month.
Raj Makanjee, FNB retail chief executive, says: “Consumers who have not defaulted on a credit repayment in the past 18 months show better money management practices in general. These consumers are typically saving more compared with those who are in arrears and hold more secured credit, such as a home loan or vehicle finance as opposed to unsecured credit.”
Christoph Nieuwoudt, FNB consumer chief executive, says: “In contrast, the reliance on debt is higher among consumers who have defaulted on three or more credit obligations in the past 18 months, with nearly 80% of monthly interest paid going towards servicing unsecured credit. Consumers are also taking on expensive forms of credit from multiple providers and potentially at maximum interest rates.”
Read: 4 ways to pay off your debts – lessons from our Money Makeover contestants
NEDBANK CUTS BANK FEE
Nedbank has announced that it has dropped the monthly account fee on its Pay-As-You-Use account. With South Africa again facing low economic growth this year and with load shedding and price hikes set to drive unemployment even higher, South Africa’s consumers are feeling the pinch.
“It’s at times like these that the need for accessible, affordable banking solutions is even more critical,” says Vanesha Palani, head: card, payments and transactional products at Nedbank.
“It’s a perfect storm for consumers at present: They are cash-strapped and need to keep banking costs down but, at the same time, they need a way to manage their money sensibly. That’s precisely what Nedbank Pay-As-You-Use is designed to do. By dropping the R5.50 monthly account fee, we are hoping to make things easier for our clients,” she says.
“Our commitment to financial inclusion remains absolute and we now have three zero-rated banking solutions, each of them designed for particular customer needs.”
Nedbank’s Pay-As-You-Use is a no-frills, card-based transactional account, carefully designed to appeal to South Africa’s emerging middle market. It offers a range of free services such as card swipes, stop orders and email statements.
Now Pay-As-You-Use clients will no longer pay fees for everyday banking. While additional services are available, clients pay only for what they use, thus offering complete banking fees transparency and the power of a gold cheque card which allows for global acceptance and online shopping on all e-commerce platforms.
Pay-As-You-Use offers security and the convenience of transacting using mobile devices via the Nedbank MoneyApp. “Because it’s a zero-rated app, clients don’t use up their mobile data while banking on our app,” Palani says.
LOYALTY REWARDSENCOURAGE SAVINGS
‘Our research into retirement savings by Sanlam Reality loyalty members shows South African loyalty programme members save on average 33% more towards their retirement than clients who are not linked to a loyalty programme. This is significant, given that just 18.9% of South African retirement fund members will be able to maintain their standard of living in retirement – the lowest figure in five years,” says Nathea Nicolay, head of product at Sanlam Reality.
She says Sanlam Reality’s findings show that loyalty members, typically, save 16% of their salaries towards retirement, versus 12% saved by non-loyalty members. She argues that loyalty programmes use modern technology and behavioural science to achieve improved retirement savings in a world where traditional methods (government regulations, employer sponsored pension funds and trustees’ oversight) are not getting enough traction.
“Not only do we find that Sanlam Reality loyalty members save more of their salaries towards retirement, we see that they save for longer periods and they actively grow their contributions towards retirement. Across three years, all our measured premium and age brackets showed the same result: loyalty members were less likely to stop or cash-out their retirement savings.”
Using Sanlam Reality as an example, Nicolay says the programme has incentivised members to not only save more for retirement, but to save longer. This is done by helping members to keep finances top of mind through immediate discounts and rewards. This communication typically forms part of the aha moments, which are linked to continual and immediate exposure to information and benefits.
Nicolay says the “science” works through a four-pronged approach: a reward, competition, daily treats and special offers. Loyalty programme tier systems incentivise people to compete with themselves. Competition, plus the fear of missing out on a good deal drives the need to move from bronze to gold. Then the constant array of discounts and savings offers keep money matters top of mind.
