One of the greatest challenges facing South Africa is encouraging people to save. Our low savings rate has a direct impact on our personal financial security and the health of the wider economy.
There are many reasons why people find it difficult to put money aside, and not all of them have to do with the high cost of living. For a start, many South Africans are intimidated by the number of investment and savings options they are faced with. Choosing the right product is so daunting that they are paralysed into not making any choice at all.
Sound advice might help them, but a great number of people feel that they don’t have enough money to approach a professional financial adviser.
They might also be worried about how much this service will cost them. As a result many people who know they should be saving don’t do so because it just seems too intimidating. They find that it is less stressful not to think about it.
This really lays down a challenge to the local financial services industry. How can it make saving and investing easier, cheaper and more accessible?
Online Savings Advice
Perhaps inevitably, technology is starting to provide a solution. Recently we have seen the local introduction of online tools known as “robo-advisers”.
These are essentially interactive websites set up by financial advice firms to provide basic advice to individual investors. Anyone who wishes to start saving goes onto the site, answers questions about their goals, their time horizon and how much money they want to put away, and they are provided with a customised solution.
These sites also allow the individual to make the investment immediately through secure online platforms. All of the forms are created electronically, so that all the investor needs to do to finalise the transaction is send in their FICA documentation.
These “robo-advisers” have two major advantages. The first is their accessibility, as they drastically simplify the investment process and enable anyone with any kind of connectivity to obtain basic advice. The second is that no matter how much anybody has to invest, they are treated exactly the same and receive the same information.
Essentially they democratise financial advice because even if you only have R500, a “robo-adviser” can give you guidance on where to invest it. That completely takes away the intimidation factor and hopefully breaks down some of the barriers that prevent people from saving.
Words: Patrick Cairns