ACHIEVING FINANCIAL MATURITY
The recently delivered Budget Speech was noteworthy for being fairly short, straight forward and pretty light in its amendments. There appears to be a clear acknowledgement by National Treasury and SARS that the taxpayer has been tapped out, and any additional tax increases will actually result in less tax revenue. We saw the normal increases in tax brackets to counter the impact of inflation and as always sins tax meant that booze and smokes are now more expensive. What does get us excited though is the increase of the tax-free component in the lump sum tax tables (first amendment since 2014 tax year). National Treasury have indicated that only 6% of South Africans will be able to retire comfortably and part of the way to rectify this is to give the taxpayer financial incentives to save and the increase in the tax-free component does just that. In a great coincidence of timing Sanlam recently released a study that deals with savings and in this month’s Financial View, we look at how as you grow older most people achieve maturity of thought when it comes to dealing with financial matters, however, they often reach this level of maturity too late in life.
The Sanlam Study
Sanlam recently launched a great look at one’s financial journey with their “LI:FE of Confidence” campaign. Their website opens with the premise “Imagine you lived your whole life in a single day. Would it change the choices you make?” They then take this concept into a series of videos that deal with different stages of the day. At 6am you are 20 years old. At 6pm you are 60 years old. While the videos are very much focused on Sanlam as a business entity capable of meeting your financial needs, they still make good watching just as a reminder of the various life stages that we face. The videos can be accessed on their website: Plan Your Life of Confidence | Sanlam
The videos are just the gravy though. What really excites us at Magwitch is the data captured for the survey. The survey can be viewed as the meat, potatoes & two veg part of the plate. The survey was conducted in partnership with News24 and crossed a sample of South Africans. What that information tells us is telling.
One of the series of questions asked dealt with the products that the respondent may have. Looking at what is important to the older generation compared to the younger generation would indicate that we tend to learn with age. But perhaps the wisdom comes at a time later in life than we actually need.
What is important to the average 60-year-old?
As mentioned, the survey dealt with the products that the respondents may have. Sanlam categorised the data into age brackets so financial product used looks as follows for those people between age of 60-64 (effectively those approaching retirement).
The graphic probably paints an expected picture. As you get on in age medical costs become a concern so you would look to cover those expenses through membership of a medical aid or having medical insurance. Mortality is a concern so funeral policies and life insurance still have relatively high usage. Assets have been built up so short-term insurance is a necessity to protect those assets. Finally, retirement and therefore retirement savings is a problem with less than half of those approaching retirement age have any retirement savings (and that doesn’t get into whether there is even sufficient funds within their retirement savings). There is an element of savings and investments so hopefully there is a means of supplementing retirement savings capital.
This may reflect in where this category views their biggest financial concerns.
What is important for the average 30-year-old?
Sanlam have conducted their survey from age 20. We know that many people take a while to find their feet and plot their life when they first start their career. To that end we have given a free pass on the first decade of someone’s working career and selected the graph for the typical 30 year old to show the financial product penetration there.
What is scary for this category is just how different the products look compared to those people approaching retirement, who tend to think at length about their financial needs. We see a lot of debt with credit cards and personal loans. A lower percentage of just over one quarter of people have retirement savings, despite the wide availability of products and the easier access to information these days.
All this is however reflecting how the youth think and what concerns them these days. Their financial concerns relate to the here and now. The use of income to cover current expenses and reduce debt is very high on the list.
Just 1.8% of the people in the younger data set worry about retiring comfortably compared to the 36.4% approaching retirement.
Conclusion
The different pictures painted for the two age categories intuitively makes sense. When you are young retirement is a long way away. You have more pressing matters to focus on. When you are older retirement is staring you in the face and your main concern is whether you can hold that stare, or drop your head and look away.
The Sanlam survey is great at showing how our financial concerns change as we age. A brief summary of just the three most prominent.
Close to half of the retirees who participated in the survey wished that they could tell their younger self “Think of money as an asset to grow, rather than a luxury to spend.” Perhaps the most common example of this that financial institutions use is depicted by a tree. Perhaps symbolising the famed money tree. Many cut down their tree early on. Many don’t provide the tree with enough water, sun and nutrients. Few get to enjoy the fruit from the tree.
We do often include a Warren Buffett quote and perhaps the appropriate one here – “Someone is sitting in shade today because someone planted a tree a long time ago.” For us long term thinking gives the best results and it is never too late to start planning for retirement. True financial maturity involves thinking like someone who has seen it all already.
The sooner you start the better and the easier it will be to achieve your goals. In order for you to achieve your retirement goals, contribute on a monthly basis and aim to contribute at least 10% of your gross income each month, take advantage of the tax breaks, make sure you are invested in the correct asset classes and do this every month until you reach retirement. Finally, don’t touch the capital in between when you change jobs.
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