It is said that South Africa does not have a savings culture, however, many South Africans do find a way to save, according to Asavela Gwele an Investment Consultant at 10X Investments.
There are two ways that South Africans save money including stokvels, informal community savings programmes, and regulated and tax-efficient savings products, such as a tax-free savings account.
Here Gwele breaks down what stokvels and tax-free savings are:
Stokvels
Stokvels are groups of people who meet monthly, fortnightly or weekly to set joint savings goals and they each contribute towards that goal.
These goals can include contributions towards member burials or savings that are withdrawn at the end of each year.
Stokvels are governed by rules that are set by the members to ensure that no member of the stokvel is ‘cheated’.
Having a group of participants channelling their funds through a single source like a stokvel puts them at a greater advantage because they realise greater returns than if they had been saving alone.
Stokvels are also rethinking their model, where some of them are becoming investment vehicles that acquire and fund businesses enabling people to have new innovative and creative ways of growing their money.
Sifiso Nkosi, Product Growth Head, FNB said that stokvels are way to work towards financial goals, using community-based value systems that ensure the collective benefits from scale and growth in unison.
Tax-free savings accounts
Tax-free savings accounts (TFSAs) were introduced to South Africa in 2015 to encourage households to start saving.
Tax-free savings accounts allow contributors to make deposits of up to R36,000 per year (up to a lifetime maximum contribution of R500,000).
TFSAs were initially exclusive to banks but are now offered by financial institutions too.
Investors in TFSAs don’t pay any tax on income, dividends or capital gains on their investments held in these accounts allowing contributors to leverage the full potential of compound interest on their assets without tax.
John Manyike, head of Financial Education at Old Mutual said: “Be aware that if you don’t use your full annual limit of R36 000 in one year, it cannot be carried over to the next year.”
All South Africans are eligible for a tax-free savings account, even those without a tax number. However, an ID number is required. This means that parents and guardians can open TFSAs on behalf of their children.
Savings vehicles for you
The main difference between TFSAs and stokvels is that the former encourages long-term saving and investing for individuals while the latter ranges from short to long-term goals and are designed for groups.
South Africans can make use of both stokvels and TFSAs to boost their individual and community savings ambitions, but, the choice is yours.
The content is provided as general information and is not intended as nor does it constitute financial, tax, legal, investment, or other advice.
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