Planning for emergencies should be prioritised now more than ever

Willem Smith, Executive Head for Distribution at Hollard Life Solutions
Willem Smith, Executive Head for Distribution at Hollard Life Solutions

The outbreak of the Covid-19 pandemic and its subsequent economic impact has had a profound impact on the culture of household savings in South Africa, which was already lacklustre even prior to 2020. Statistics South Africa has revealed that the household saving rate in the country has decreased to 0.50% in the fourth quarter of 2020 from 0.70% in the third quarter of 2020.

The Covid-19 pandemic has brought into sharp focus the importance of having savings and some form of insurance as a safety net for life’s unexpected eventualities such as loss of income or death.

While the importance of insurance cannot be overstated, many hard-pressed households are faced with conflicting demands on their declining disposable income. What makes the economic situation even more challenging is that nearly three million people lost their jobs during the nationwide lockdown, according to the National Income Dynamics Coronavirus Rapid Mobile Survey, research that was conducted by thirty social science researchers from five South African universities over the course of May and December 2020.

South African Savings Institute has noted the December 2017 SARB Quarterly Bulletin numbers, which reveal household savings to disposable income at 0.2% per month, meaning households are saving 0.2% of their income. This represents a positive savings ratio from the last quarter of 2016, and it means that South Africans are starting to save again. Debt to household income remains stubbornly high at 72.5% in

Willem Smith, Executive Head for Distribution at Hollard Life Solutions says: “We are living in difficult times where the grim economic environment has required consumers to adjust their expenditure in order to stretch their rand further. It is unfortunate that some consumers have been compelled to dip into their savings to offset the impact of the lockdown, while others opted to resign from their jobs in order to access their retirement and pension savings. These decisions have derailed consumer’s savings journey and will impact their tax status and retirement planning negatively. A number of independent studies such as the South African Savings Institute have revealed that households are saving 0.2% of their income and the debt to household income remains. While this is a slight improvement, reduced disposable incomes, job losses and the overall increase in the cost of living which has manifested itself in increased fuel and food prices and the rising costs threaten to reverse these gains.”

Smith highlights that the economic hardship brought about by Covid-19 has once again demonstrated the importance of having some form of savings for emergencies.”

According to Smith, the pandemic has demonstrated how vulnerable we are and how our financial situation can change overnight. It is therefore critical for every household to have a financial plan that supports plans for unforeseen events. Retrenchments or loss of income, for example, have become an unfortunate reality for many South Africans, so it’s important that people know what they are covered for in the event of a retrenchment, so they that in the event that there are gaps in the cover, they can plan accordingly to close any of the gaps in their cover, if required.

“With this in mind, financial planning should still be a priority during this time. Irrespective of the amount saved, it is important to make sure that one puts something aside for a rainy day,” Smith urges.

He notes that signing up for an insurance cover like income protection, death or disability cover does not have to cost an arm and a leg. For example, he says that households should examine their monthly expenditure and identify areas such as purchases of fast food where they can reduce spending to redirect funds towards essential expenditure to cover short term cover.

“The simplest option is bank savings as it allows for relatively small amounts of money to be set aside for emergencies such as medical costs or other unforeseen costs. Insurance also offers a great way to protect consumers from significant financial loss, be it through death or an accident, with a relatively small monthly premium. The death of the main bread winner in the household could significantly impact all members of that household. Simple income protection or family provider cover could prove to be invaluable when distraught families are faced with the grim prospect of a death of a breadwinner,” highlights Smith.

“We are living in uncertain times and a lot of consumers barely get by and are living from hand to mouth. So, it is crucial that when we can, we should take proactive steps to protect the things we care about,” Smith emphasises.

Visit the official COVID-19 government website to stay informed: