The following section provide the reader with the findings of this study. 5.4.1 Retirement savings patterns
Findings from this study underscore the pivotal importance of focusing on this income bracket in order to achieve programmatically meaningful improvements in retirement savings. Consistent with other South African studies, the majority (90%) of income earners in this nationally representative sample were low to middle income earners. Furthermore, the majority of the participants in this bracket were not saving towards retirement savings (82%). This is worrying, considering that the median age of the participants with no retirement savings was 41 years, with a mere 19 years left to possible retirement. At a descriptive level, most participants who were not saving towards retirement perceived that their actual income was lower than their minimal needs, and the majority were also in the lowest LSM category. These results are consistent with several South African reports which attribute the lack of savings to low disposable income. For the overall study sample, the evaluated indicators showed very low levels of financial knowledge, financial behaviour and financial attitudes. This is in line with the low overall financial literacy scores from the two most recent national surveys, which are lower in
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comparison to other OECD countries. Of the three financial literacy indicators, financial behaviour was the worst-performing with just under a fifth of participants exhibiting high financial behaviour. Studies from countries such as China, with populations that earn less on average compared to South Africans, suggest that when low levels of income are coupled with high financial behaviour, savings will increase. Therefore, there is still untapped potential in improving the level of retirement savings among low to middle income earners in South Africa.
5.4.2 Voluntary retirement savings versus compulsory retirement savings Given that both groups were saving towards retirement, the primary aim of this comparison was to identify superior characteristics (if any) among the voluntary saving group members. Since the economic recession in 2008, several sectors in South Africa have been failing to retain employees. This has led to an increase in companies retrenching to downsize their workforce. Research has shown that over two-thirds of individuals who are retrenched will make withdrawals from their pensions.
An additional question that this study asked was, what would have to be changed in an individual to start saving voluntarily, coming from a compulsory work-fund system. Answering this question required identifying the characteristics that were different between participants in the two groups. Although at univariate level, several financial literacy indicators were found to differ between the two groups, the majority lost significance when they were adjusted for at multivariable level. Study results showed that high financial behaviour was the only statistically significant factor between individuals saving voluntarily compared to those in the compulsory savings category. In order to ensure continuity of retirement savings behaviour among employees who passively save for retirement through work-based funds, this study identified four categories of financial behaviour that need to be further evaluated and continuously targeted to equip employees. Financial planners and other key players should target the following behaviours: careful consideration of purchases, close management of financial affairs, establishment of long-term goals and the development of household budgets.
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5.4.3 Voluntary retirement savings versus no retirement savings
The majority of study participants were not saving towards retirement, and this group was disproportionately affected by several factors which may be proxies for other contextual variables which were not explored as part of this study. Of the three financial literacy indicators, financial behaviour was the only one retained in multivariable analyses. This supports other studies that have found a strong association between retirement savings and short-term financial behaviours such as paying bills on time, actively saving and having an emergency account (Hilgert et al., 2003; Lusardi & Mitchell, 2007b; Atkinson et al., 2015).
Positive financial behaviours such as an orientation toward the future predicts the tendency to plan and save and ultimately increase retirement preparedness (Jacobs- Lawson & Hershey, 2005). In addition, Bemheim et al. (1997) and Burtless (1996) found that the more an individual is willing to postpone spending in order to save, the more likely they are to be saving towards retirement.
All these findings point to the need to understand the complex process of the underlying mechanisms which influence the low financial behaviour exhibited by South Africans. However, these findings are in contrast to previous research which has shown that those with a better grasp of financial knowledge are more likely to be saving towards their retirement (Lusardi & Mitchell, 2007b; Danes & Brewton, 2013). These differences in results can be attributed to the difference in setting (developed vs. developing) and the focus on different retirement savings categories.
Disparities in level of education were found to influence the probability of saving voluntarily for retirement. Interestingly though, the differences in financial knowledge between the two groups were not statistically significant, which suggest that levels of education may be a proxy for other unmeasured socio-economic factors not included in this study. Similarly, there is a need to start integrating financial knowledge concepts in the education curriculum as early as pre-school to support future generations. Other developed countries have already started such initiatives.
Findings from this study are consistent with Greene (2014) who found that white individuals tend to be more likely to have a retirement account than any other race. The notion that unmarried people are less likely to save towards retirement than their married counterparts (Foster, 2012; Nkoutchou & Eiselen, 2012) was supported in this study’s
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results. On the contrary, however, this study’s findings show that gender was not associated with retirement savings, which fails to support previous studies suggesting that men were more likely to save towards retirement than women (Lusardi, 2008b; Nkoutchou & Eiselen, 2012; Bucher-Koenen et al., 2014; Greene, 2014).
The role of LSM category in increasing the probability of voluntary savings requires further research. Additional enquires should delineate whether the low financial behaviours influence the low LSM category for those without retirement savings or whether the low LSM results in low financial behaviours. Study findings showed that at univariate analysis, a lower household income compared to minimum needs was associated with a higher probability of not saving, however, this significance was lost at multivariable level. Similarly, whether participants perceived themselves to be of low or high social status did not explain the differences in saving voluntarily for retirement or not saving at all. This underscores the complexities and dangers of interpreting retirement savings behaviour in relation to how much a person earns without accounting for financial behaviour, which had a weighty bearing in these study findings.