Festive Season Savings Campaign
13 November 2008
Elias Masilela Chairman of the South African Savings Institute (SASI) tells us how to save this Christmas

JOHN FRASER: We’re heading for Christmas and it’s a time when we let down our guard a bit, particularly if we have a Christmas bonus, there’s this temporary feeling that we’re in charge of our finances and our finances will sustain us. But it’s a dangerous period and the South African Savings Institute has just launched another campaign to remind us that what you do during the Christmas period, you may rue for the rest of the year. To discuss this, I’m joined by the chairman of the South African Savings Institute (SASI), Elias Masilela.
How tempting is it just to let your guard down, and spend, spend, spend?

ELIAS MASILELA: In fact I think you need to keep your guard up, particularly this year. This is the second time we run this campaign - we started last year and the economy was doing fairly well last year. Now this time around, we are faced with a financial crisis, which is not going to leave South Africa unscathed. We’re still going to feel the pain and that necessarily means the individuals need to prepare themselves for that pain. That means as we go into the festive season, we need to think carefully about whether or not we are going to be ready for next year.

JOHN FRASER: I suppose one problem is that people don’t necessarily spend money they’ve got, sometimes they spend money they haven’t got in the form of credit cards, or overdrafts, or whatever.

ELIAS MASILELA: Predominantly that’s what happens but that on its own is not a bad idea - if you are going to spend money that you don’t have, then it means that you're borrowing from a relative or a friend or a neighbour, or you go to your bank manager. Now it’s going to your bank manager that is a bit of a trick - the trick comes in the sense that you have to pay back that money with interest. In SASI we argue that its not a big deal if where you're going to put the money is going to earn you a higher return than the course of borrowing. If for instance you go and borrow R1,000 to open a spaza shop, and you earn 30% on the spaza shop on your return, and the cost of debt is only 15%, you're making a margin of 15% and you’ll be encouraged to borrow more until that margin reduces almost to what you see as a comfortable margin you cannot go below.

JOHN FRASER: You’ve identified a phrase, a theme: “Slow down, New Year ahead”. That’s basically the message - you can have a great Christmas, you can have a great new year, and then suddenly the bells start …

ELIAS MASILELA: What we often do is that when we go into the festive season, we let our guards drop - as you said - which I am cautioning against. What we do is then end up spending more than we can afford and we go to the extent of borrowing to finance consumption. That to me is one of the biggest risks that we’re faced with. Once we do that, we forget that in the New Year we still have obligations that will never go away - school fees, uniforms and your monthly bills, which you have to face. You cannot go to your headmaster and say you’ve over committed, or over indulged over the festive season, can you give me another two or three months to recover. He wants his money because he has to educate your child. There is nothing as embarrassing as telling your child that: “Baby I don’t have enough money to take you to school this year - can you wait three months whilst I recover…” - we don’t want South African’s finding themselves in that situation.

JOHN FRASER: Tell me - how good are we at saving - or how bad are we at saving …

ELIAS MASILELA: It’s more appropriate to ask it that way. I have numbers in front of me, which are generated by the SA Reserve Bank . what the numbers indicate is that we’re doing very badly as a country. It’s even worse when you look at the household.

JOHN FRASER: OK, we’re not doing it - just give us one little hint, one little tip, one little bit of advice which is going to turn us from spenders into savers. Is there anything we can do, because you know these are tough times?

ELIAS MASILELA: Tough times indeed - we have one golden rule and that rule is living within your means. Living within your means basically understanding what your abilities are. Understanding what your income level is and try and spend within that income level. If you cannot do that, make sure that you borrow wisely, you borrow properly, that you're not exposing yourself to expensive debt that is something that people can be able to evaluate. However, the biggest problem in South Africa is peer pressure - competition, trying to do what the Jones’ are doing, competing with the cars that we drive, competing with the clothes that we wear and the restaurants that we visit. We are saying as SASI, try and slow down on those and be able to distinguish between needs and wants. For a lot of us, we don’t know what the distinction is and until we are able to draw the distinction, it is going to be impossible onto the right side of their balance sheets.

JOHN FRASER: Maybe we should all have a miserable Christmas because then of course we wont have a wretched new year…