Standard Bank warning to South Africans earning over R25,000 per month – BusinessTech

Standard Bank has warned that many South Africans earning over R25,000 struggle to build emergency cash savings.

According to Standard Bank data, more than half (52%) of entry-level private banking clients have less than one month of their salary saved in immediately accessible cash savings, available in the event of unforeseen circumstances such as retrenchments or urgent medical procedures.

The bank pointed to the tough economic conditions and high cost of living as the primary reason for this trend.

Without savings, many have had to resort to debt, eroding their ability to build wealth over the long term.

Standard Bank conducted an analysis comparing the cash savings accessible within 24 hours for both Prestige and entry-level Private Banking clients to their monthly salaries and fixed expenses.

Among Standard Bank’s Prestige client base, which consists of individuals earning between R25,000 and R58,000 a month, nearly one in three (29%) had no accessible emergency savings.

In the higher income bracket, individuals earning between R700,000 and R1 million annually, over a third had no emergency savings, with 45% having savings that would last less than a month.

“The data shows that the ability to build adequate cash saving for use in an emergency is not only dependent on earning a higher income,”, said Doret Jooste, Head of Money Management and Advisory at Standard Bank. 

“Having cash savings on hand is the cornerstone of healthy money management and likely the most important thing to prioritise when you want to start building your wealth”, Jooste added.

It’s important to have emergency savings to avoid taking unnecessary and expensive short-term debt when you have an urgent expense.

It also helps you stay on track with your long-term investment goals, such as saving for your kids’ education or retirement.

Instead of having to use your long-term investments to cover unexpected expenses, having accessible emergency savings allows you to stick to your financial goals and long-term plan, helping you achieve important goals and build wealth.

“Having three months’ salary saved may sound like a large amount, but it can be built over time.  For example, first aim to cover your fixed expenses for one month with your savings.

“Then gradually start building it up from there,” said Bridgette Kruger, Standard Bank’s Head of Private Banking in South Africa.

Jooste emphasised that Standard Bank’s insights highlight the need for consumers to reconsider their current savings behaviour.

South African consumers are facing more financial pressure on top of their already tight budgets.

South Africa is currently experiencing low economic growth (0.3% in 2023) and the latest unemployment rate has risen to 32.9% in Q1 2024.

High borrowing costs at a 15-year peak and elevated inflation are also affecting South African consumers.

Unfortunately, struggling households are unlikely to see any relief soon, as further cost pressures are predicted for the coming year.

This includes delayed interest rate cuts, higher electricity prices, increased municipal rates, and expensive food items.

The financial strain on consumers was reflected in Standard Bank’s credit impairments,

which grew from R13.3 billion in FY22 to R16.2 billion in FY23, and are expected to peak in the first six months of 2024, primarily driven by the ongoing strain in the Personal and Private Banking sectors.

The credit loss ratio is expected to remain near the top of the group’s through-the-cycle credit loss ratio range of 70 to 100 basis points in 2024.