Insights from behavioural economics on the uptake of savings initiatives such as the South African tax-free savings account.
The benefits of saving are clear to many of us. Individually, saving can help us achieve greater financial stability. On a broader scale, the economy profits from a reduced dependence on international capital flows and greater funds for accelerated investment spending. This type of spending can build solid foundations for faster economic growth, poverty alleviation and job creation.
Despite the benefits of saving more, saving rates in South Africa remain worryingly low. In fact, we are incurring more debt than ever: household saving to disposable income is estimated at -0.8% in quarter 3 of 2016, while household debt to disposable income reached an estimated 75% in 2016.
One response of National Treasury to the savings deficit has been the introduction of a tax-free savings account. The objective of this savings account is to create an incentive for household saving with contributions being tax deductible and accumulations tax deferred.
Taking advantage of this saving opportunity should be a clearly preferred option for many South African households. Indeed, in the period March 2015 to March 2016, over 200 000 tax-free savings accounts were opened in South Africa. This translates to around 700 new accounts every day, at an average account value of R9 785.
However, while there are many people opening tax-free savings accounts, there is still a large proportion of the population that has not. Furthermore those with tax-free savings accounts are most likely financially savvy, and would already have other savings vehicles in place.
Given our objectives to accelerate the rate of saving in South Africa, can insights from behavioural economics help nudge South Africans to save more, specifically through the uptake of the tax-free savings account?
We suggest simple nudges inspired by behavioural economics as effective interventions to raise participation in savings initiatives.
In South Africa, it is essential that we consider these savings nudges to build on the gains we have made through the introduction of the tax-free savings account and the strength of our current regulatory framework. We value continued support from various stakeholders, particularly the National Treasury and Financial Services Board. Furthermore, we welcome other initiatives that realise the goal of financial security for South Africans and our economy