SASI Savings Round Table Rhodes University 26 May 2005 “A micro view” Darrell Beghin FinMark Trust FinScope & Financ

1. Making Financial Markets Work SASI Savings Round Table Rhodes University 26 May 2005 “A micro view” Darrell Beghin FinMark Trust FinScope & Financial Diaries

2. Making Financial Markets Work Who and What ? • Insights • consumer paradigms & realities • product consumption • Questions & opportunities

3. Consumer Realities - Income sources (n=2988) • On average, consumers claim to have only one source of income • Almost one-third of the population obtains money from friends/family as their main source of income Average number of mentions: 1.1 Never banked 44% Black 32% Currently banked 34% White 33% • All 1%: • Maintenance • Private sale of goods • Financial investments • Gambling • Lottery Never banked 21% Coloured 14% %

4. Consumer Realities - Household risks Factors likely to impact finances 2003 (n=2984) % 2004 (n=2895) % Total sample (n=2 988) % 32 43 34 40 35 35 24 31 • After shelter, the next greatest threat is the loss of income from the main wage-earner of the household • Overall, there are many other concerns before loss of banking facilities becomes an issue N/A 27 21 23 18 24 N/A 17 10 14 8 11 N/A 11 6 8 9 7 6 7 4 6 3 6 29 17

5. Consumer Realities – Coping with events • Only one in eight people believe that approaching the bank for a loan is the way to deal with financial life events % Friends/family seen as the first port of call in a crisis! Ask friends/ relatives/ neighbours for money Take loan from friends/ family Take loan from bank Withdraw savings/ invest-ments Apply for govt. grant/ aid Cash in insurance policies Sell assets Loan from employer Loan from burial society/ stokvel Apply for more credit Use house/ property as security for additional finance Don’t know 2003 18+ (n= 1423) N/A 33 12 15 21 10 12 5 4 1 N/A 6 2004 18+ (n= 1861) 26 23 14 13 11 6 5 4 3 2 2 22

6. Consumer Realities - Decision making16+ years (n=2988) • 58% of the population makes financial decisions on their own or in consultation with a partner/spouse - Financial decision-making increases with FSM tier - Also more prominent in white market and amongst banked segment • Non-decision making skews to younger consumers (75% of 16-17 year olds claim to make no household financial decisions) and to the never banked (36%) Who are most likely to make decisions on their own or in consultation with partner/spouse? Currently banked 73% Previously banked 61% Never banked 41% Black 55% White 80% Coloured 56% Asian 63% FSM 1 41% FSM 2 46% FSM 3 58% FSM 4 70% FSM 5 71% FSM 6 74% FSM 7 87% FSM 8 87% Source:Q34 Read: 25% of the total sample makes financial decisions on their own and 33% decide in consultation with a partner/spouse

7. ConsumerRealities- Perceptions re savings

8. Consumer Realities - Savings psychographics

9. Consumer Realities – Buying Triggers16+ years (n=2988) • Ultimately, the monthly repayments are the deciding factor • However, a quarter of FSM 8 claim that the interest rate must be the lowest possible • Credit is not something that lower FSM groups really consider as an option When deciding to purchase an item on credit, which one of the following is most important to you? Monthly payments must be affordable FSM 1 77% FSM 2 69% FSM 3 51% FSM 4 44% FSM 5 37% FSM 6 32% FSM 7 32% FSM 8 25% None of these – don’t purchase on credit Interest must be lowest available Repayment period must be flexible Don’t know

10. Product Consumption - Ways of investing16+ years • Overall low usage of mainstream investment instruments – bank savings accounts and burial societies dominate (n=2988) Have now and use Have now and use Never had % 50 79 88 91 92 88 92 93 95 94

11. Product Consumption – No life insurance because…16+ years Skew to lower FSMs 1-3 65% Black 69% Coloured Skew to higher FSMs 43% FSM 8 Cost is the main obstacle to entry

12. Product Consumption - Policy Cancellations16+ years • Three-quarters of consumers have not cancelled any policies – White and Asian skew • Cancellations highest amongst FSM 8 – 38% Stopped or cancelled Reasons Highest for FSM 1-3 11% for FSM 8 36% for FSM 5 30% for FSM 6 34% for FSM 7 32% for FSM 8 29% for FSM 8 Black 22% White 36% Coloured 15% Asian 31% %

13. Product Consumption – Funeral/burial policies16+ years • Few differences between FSM tiers – differences occur in actual products rather than number of policies • Slight tendency for FSM tier 8 to have multiple individual funeral policies Funeral policy (individual) Burial society Funeral scheme (group)

14. 42% do not have any service 58% have a service Banking only 25% Retail only 3% Loans only 2% Housing only 0% Banking, retail 13% Banking, loans 4% Banking, housing 1% Banking, retail, loans 3% Banking, housing, loans 2% Banking, housing, retail cards 2% Product Consumption –Financial Services 16+ years (n=2988) • Almost half of the population does not utilise any product offering from any of the four categories - banking, retail, housing or loans • Tendency is to have just one product, which is typically a banking product Banking, housing, loans, retail 4%

15. Consumption & Reality meet in Lending16+ years White (n=655) Black (n=1570) % % Coloured (n=559) Asian (n=204) % %

16. Summary • Consumers are: • Strapped for extra/enough cash, struggle and do without • Concerned about death and loss of income & old age • Not financially astute – consult friends and family • Varied in decision-making methods and using improper triggers • Using savings for “credit vehicles” - save to pay for living expenses – NOT asset acquisitions • Not all that smart about using credit • Using short term solutions and creating longer term problems – e.g. forfeiting education to earn extra income • Unable to save for unforeseen events – heavy impacts from extended family deaths • Afraid to ask formally how instruments work • Not making the best use of available services

17. Summary • Consumers: • Must be seen holistically – wallet split and life stage • Cultural beliefs and aspects need to be considered and managed • Also personal motivations • Need more income to move to “life asset” savings activities • Should to switch from borrowing as emergency first call to using savings – resource dependant • Require education in money management – absence is reflected in “mis-spend” on informal & formal instruments

18. Summary • Products: • Not well dispersed across the consumer market -formal financial instruments are not as well used as stokvels at the low income end • Stokvels tend to be used for a specific time or event • Savings accounts are used as transaction accounts • Formal products tend to be linked to formal employment e.g. provident funds • Only 12% of the households seek a formal savings product without it being connected to their jobs • Informal instruments provide a major social structure for consumers to interact with each other • Money guarding is used as saving instrument but there is no accumulation of benefits • Most informal devices offer poor returns on investments

19. Summary • Products: • Inflexible- pricing, terms, applications, overlapping • Require urgent innovation and simplification, also for small business savings • Offerings are confusing with little perceived benefits • Hidden within formidable Service Provider structures, which are not easy to access physically • Need to move consumers from “consumption” saving to “life improvement” savings and investments – huge opportunity • Affordable savings & investment instruments required • Informal instruments are not offering adequate returns and carry high risks • Informal & formal instruments could be closer – bank accounts for savings clubs are purely entry level and more transaction based? • Need to create a bridge from informal to formal instruments

20. And so….? • What will/should Government do? • Will Business rise to the true market challenges? • Where will Consumers gain extra income to balance credit and savings utilisation? • Are Consumers up to the challenge? Who will equip them, and with what? • Are you?

21. Thank you! FinScope & Financial Diaries Websites for more information