Less than 6% of middle-income customers have sufficient emergency savings, says FNB

Having savings on hand is one of the most effective ways of building financial resilience, and cope with any unexpected event or circumstance that life throws our way. Unfortunately, as Covid-19 and the national lockdown revealed, few South Africans have emergency savings on hand, and had to make do with lower or a loss in income for a few months. 

Raj Makanjee, the CEO of FNB Retail, says accepted best practice in becoming financially resilient is having emergency savings available equal to at least three months’ worth of income or take-home pay. “Having a three-month financial buffer can be a lifesaver if an unexpected situation arises, such as retrenchment or temporary loss of income. Those savings allow us to get through the difficult times or cover unexpected expenses such as a burst geyser, new tyres for the car or medical expenses, without having to take on additional debt just to cover monthly living expenses.”

This was highlighted by research done by FNB among its middle-income customers who earn between R15,000 and R42,000 a month. “More than 80% of middle-income customers have no or limited savings they can access within seven days in case of an emergency. About 27% have no emergency savings, and 56% have savings that are less than one week’s worth of take-home pay.” 

The research looked at all money customers have available across transactional and savings accounts as well as prepayments on access facilities such as credit cards or home loans where they can access within seven days. From the FNB internal research, less than 6% of the bank’s middle-income customers have emergency savings that would see them through a loss of regular income for three months or longer. 

Doret Jooste, the CEO of FNB Retail Money Management, says: “Comparing customers with the same level of income but different savings levels, we found those with low or no savings tend to be spending more on discretionary spend categories such as travel, holiday accommodation and liquor. They also tend to spend more on servicing unsecured debt, such as retail loans and credit cards, than customers who are saving more. This shows that rather than income determining savings levels, the everyday decisions we make on spending, or how much debt we take have a big influence on our savings levels or ability to be financially resilient. 

How can FNB help? 

Jooste says the first step to building up an emergency savings balance is recognising that it can take time and patience. “It’s easy to get overwhelmed by looking at how much money we need to save up and never get started. 

“If you’re starting out, don’t focus on the three months’ worth of income needed — just aim for half a month’s income or take-home pay as a starting goal.  Then, decide how much to put towards this savings goal every month and save it as soon as you get your salary. Starting with putting R50 or R100 towards your savings goal is a good way to get going as this money will grow over time, and it’s always better to start today than delaying it until ‘one day’.”

You can find the balance between day-to-day living costs, paying off debt, and saving by identifying where you can free up cash in your spending. This is where the importance of a budget comes in and why FNB launched the Money functionality and tools on the FNB app.

These tools help customers by automatically categorising their spending, giving them the ability to set up limits on different spend categories and notifications to alert them throughout the month when they are close to reaching a spending limit to easily keep track of their spending.   

Jooste says, “Other practical ways for FNB customers to free up cash include earning and spending eBucks at some of our retail partners such as Checkers, Engen and Clicks when buying groceries, fuel and personal goods. FNB customers can also earn eBucks every month on their FNB Connect spend plus get great deals on data and voice minutes.

“Banking smartly by scheduling your debit orders close to your salary deposit date to avoid unnecessary fees from bounced debit orders will also help you save. Lastly, taking control of your debt by consolidating unsecured debt into one loan with one monthly account fee and a potentially lower interest rate, can also help you free up cash.    

“Given that low savers tend to have higher debt, it’s important to balance this freed-up money between paying off debt and saving. “For example, if you’ve freed up R300, try routing R200 of this to paying off your debt sooner while starting a savings account with the remaining R100 and still sticking to your budget.”

Automating your savings is an excellent way of staying in control of your savings over time. “Our customers who open a FNB savings or cash investments account and then immediately set up an automated scheduled transfer or recurring payment into those accounts using our Savings Goals feature, are more likely to stick to their savings goal and enjoy the biggest saving success in the long term. Most of them point out that by automating their savings, they soon don’t even notice the money leaving their transactional accounts every month. It’s also satisfying and rewarding to see your savings growing closer to your savings goal,” says Jooste.

“So, while building up enough emergency savings may seem difficult initially, it can be possible to do, and the value of having that financial buffer available when we need it tomorrow far outweighs the small changes we may need to make to achieve it today.”

For more information, visit the FNB website.

This article was paid for by FNB.