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Comprehensive Research by Alexander Forbes reveals startling facts

I recently attended an interesting presentation by Alexander Forbes regarding one of the most comprehensive research exercises ever done on employee benefits in SA. The “Alexander Forbes Benefits Barometer” has been published “against the background of government concerns that South Africa has one of the lowest savings ratios in the world.

For example, the current national savings rate of about 16% of GDP is significantly lower than that of BRICS countries like China (53%)India (34%) and Russia (28%).

There is also concern about lack of preservation of retirement fund assets, which means that currently, only about 10% of working South Africans will be able to maintain their pre-retirement level of consumption after they retire”

This is a scary fact – how many of us are living in denial?

In a recent publication of “Money Matters” I also read the following article which ties in with the above and really speaks to each individual out there and calls for a change of mindset as far as “saving” is concerned.  Saving is, after all, a choice not a sacrifice, hence it remains a difficult task for Financial Advisors like myself to tell people to save more when they actually need to be told to spend less!

Saving is a choice not a sacrifice

We are currently living in a world where the win-win mindset is seen as the optimal solution. So the best outcome of any problem, situation, relationship – is where both parties ‘win,’ and the outcome is mutually beneficial.

But this is sometimes at odds with the savings mindset where sacrifice is all pervasive. Think about this – when you want to save more, invest more, take out more comprehensive insurance – the most frequent way of looking at this will involve a sacrifice mindset – where you have to forgo something else for that future financial peace of mind.

Is this a sacrifice or a choice?

In a world where we are able to immediately gratify our many needs (and often on credit) the sacrifice mindset is not really working.

Athletes and sportswomen and men who reach the top of their fields (preferably without the use of drugs) are often thought of as having sacrificed something along the way in lieu of the many hours they spend perfecting their skills and abilities. However, chairman of London 2012 and Olympic medalist Sebastian Coe challenged this view recently when he said he had never viewed himself as making a sacrifice – what he had made was a choice and he was happy with the choices he made.

The same needs to be true of the choices we make regarding our finances. A retiree who is struggling to make ends meet today is most unlikely to view a ‘sacrifice’ they could have made earlier in life for more income later in life as a hardship. It is far more likely to be seen as a better choice.

The problem we have with this choice is that we perceive it as having a very uncertain outcome.

“Every significant choice we make in life comes with some uncertainty,” writes Daniel Kahneman in his book Thinking, Fast and Slow.

All choices involve uncertainty but we seem to attach more uncertainty to our financial decisions, despite some excellent research and data that is widely available.

If we are to build long term sustainable wealth, where our financial health is sound, we need to challenge and change these mindsets.

Savings is a choice not a sacrifice and it is just a perception that a financial outcome is more uncertain – because it is far more certain that delaying any decision to invest and protect assets will lead to their long term destruction.