SASI

1
SASI Savings Round Table Rhodes University 26 May
2005 A micro view Darrell Beghin FinMark
Trust FinScope Financial Diaries
2
Who and What ?

• Insights
• consumer paradigms realities
• product consumption
• Questions opportunities

3
How does LSM compare to FSM?
(n2988)

• LSM really looks at the dispersion of people on
  the basis of wealth and amenities that they have
  in home
• FSM takes into account the various factors that
  make up financial sophistication such as access,
  current penetration and knowledge. This makes it
  a far more robust measure than purely looking at
  wealth and amenities as it takes into account
  your experience as well (e.g. housewife in
  Bryanston who is not banked, but whose husband
  is)
• FSM shows a greater tendency for people to be in
  lower tiers than LSM has for people to be in
  lower segments

LSM

FSM

4
Consumer Realities - Income sources
(n2988)

• 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

5
Consumer Realities - Household risks
Factors likely to impact finances
2004 (n2895)
2003 (n2984)
Total sample
(n2 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
6
Perceived Risks by Income Group
7
Perceived Risks by Income Group
8
Perceived Risks by Income Group
9
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
Dont know
2003 18 (n 1423)
33
12
15
21
10
12
5
4
1
N/A
6
N/A
2004 18 (n 1861)
23
14
13
11
6
5
4
3
2
2
26
22
10
Coping by Income Group
11
Coping by Income Group
12
Consumer Realities - Decision making16 years
(n2988)

• 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
13
Consumer Realities- Perceptions re savings
14
Consumer Realities - Savings psychographics
15
Psychographics by Income Group
16
Psychographics by Income Group
17
Psychographics by Income Group
18
Psychographics by Income Group
19
Consumer Realities Buying Triggers16 years
(n2988)

• 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 dont purchase on credit
Interest must be lowest available
Repayment period must be flexible
Dont know
20
Product Consumption - Ways of investing 16
years

• Overall low usage of mainstream investment
  instruments bank savings accounts and burial
  societies dominate

(n2988)
Have now and use
Have now and use
Never had

50
79
88
91
92
88
92
93
95
94
21
Savings Product by Income Group
22
Savings Product by Income Group
23
Product Consumption No life insurance
because16 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
24
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

25
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)
26
Stokvel Membership by Income Group
27
Product Consumption Financial Services 16 years
(n2988)

• 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
28
Consumption Reality meet in Lending 16 years
White (n655)
Black (n1570)


Coloured (n559)
Asian (n204)


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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

30
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

31
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

32
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

33
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?

34
Thank you!

• FinScope Financial Diaries
• Websites for more information

35
Investment opportunities16 years
(n2988)

• Top five potential investment opportunities
  identical
• In lower FSM groups, investment in self rather
  than external investments preferred lack of
  understanding/tangibility?
• FSM 4 consider investment products reality?

• FSM 1
• Savings a/c at bank
• Starting a business
• Burial society
• Improving your home
• PO savings acc
• Stokvel/savings club
• Investment in cattle/livestock
• Investment in own business
• Buying/making goods to sell
• Policies with insurance company

• FSM 2
• Savings a/c at bank
• Starting a business
• Burial society
• PO savings acc
• Improving your home
• Investment in own business
• Policies with insurance company
• Investment in cattle/livestock
• Stokvel/savings club
• Buying/making goods to sell

• FSM 3
• Savings a/c at bank
• Starting a business
• Burial society
• Improving your home
• PO savings acc
• Buying/making goods to sell
• Investment in own business
• Policies with insurance company
• Investment in cattle/livestock
• Stokvel/savings club

• FSM 4
• Savings a/c at bank
• Starting a business
• Improving your home
• Burial society
• PO savings acc
• Policies with insurance company
• Unit trusts
• Investment in own business
• Shares on stock exchange
• Retirement annuities

Source Q.14a
36
Investment Opportunities 16 years
(n2988)

• Increasing identity with insurance companies as
  FSM tier increases
• FSM 8 profile following different trend to other
  FSM tiers!

• FSM 5
• Savings a/c at bank
• Starting a business
• Improving your home
• Burial society
• Policies with insurance company
• Investment in own business
• PO savings acc
• Unit trusts
• Retirement annuities
• Investment in property to rent

• FSM 6
• Savings a/c at bank
• Improving your home
• Starting a business
• Policies with insurance company
• Investment in own business
• Investment in property to rent
• Unit trusts
• Burial society
• Retirement annuities
• Shares on stock exchange

• FSM 7
• Savings a/c at bank
• Investment in property to rent
• Policies with insurance company
• Starting a business
• Retirement annuities
• Unit trusts
• Improving your home
• Investment in own business
• Pay bond sooner
• Holiday home/second home

• FSM 8
• Pay bond sooner
• Investment in property to rent
• Retirement annuities
• Savings a/c at bank
• Policies with insurance company
• Unit trusts
• Holiday home/second home
• Investment in own business
• Improving your home
• Shares on stock exchange

Source Q.14a
37
FSM 1 who are these people?
Size 25
38
FSM 2 who are these people?
Size 22
39
FSM 3 who are these people?
Size 11
40
FSM 4 who are these people?
Size 13
41
FSM 5 who are these people?
Size 11
42
FSM 6 who are these people?
Size 10
43
FSM 7 who are these people?
Size 5
44
FSM 8 who are these people?
Size 3