High cost of living in South Africa limits ability to save

According to a research study conducted by FNB, South Africans believe that the high cost of living is limiting their ability to save.

The issue becomes more pronounced with last week’s announcement from Statistics SA that the annual CPI inflation rate has increased to 6.3%.

“The change in the CPI between June 2013 and July 2013 is mainly due to a 9.4% increase in water tariffs; a 7.2% increase in electricity tariffs and an 84c/litre increase in the price of petrol. These are basic necessities which impact the pocket of almost each and every consumer and will certainly make their cost of living higher,” says Lezanne Human CEO of FNB Investment Products.

The South African Reserve Bank’s target band for inflation is between 3% and 6% and for the first time in 14 months, inflation now falls outside this target.

One of the main issues with inflation is that salaries do not always increase at the same rate, making the disposable income of the consumer lower.

“The harsh reality is that consumers may find themselves tempted to borrow for everyday expenses. This could spiral into debt and diminish their ability to save. Our research shows that 73% of South Africans who do not save indicate that the high cost of living is preventing them from saving,” says Human.

Inflation causes the value of the consumer’s money to constantly decrease. This makes planning and saving for retirement or children’s education a continuously stretched target.

Many products on the market promise inflation beating returns, but with no capital guarantees and more importantly with associated fees that eat away at returns over time.

“Generally the interest-bearing cash investment products offered by banks don’t always allow a customer to keep up with inflation. This is a gap that we have spotted in the market. Our Inflation Linked Deposit account is a fee-free account that guarantees capital and saves a return of CPI plus 1%,” concludes Human.