When should you start thinking about investing YOUR money?
There is widespread sentiment in the “world of money” regarding the lack of savings culture amongst millennials. Phrases like “The YOLO generation” (YOLO being an acronym for the phrase, you only live once) and “Generation Rent” are being used to describe millennials relationship with THEIR money, emphasising a lack of prudence shown by millennials in the handling of THEIR monies.
Delving a little deeper into this issue, one needs to consider the economic factors facing millennials and what investment vehicles are not only available to millennials, but are also easily accessible.
The 2017 Old Mutual savings and investments report states that approximately 1 in 2 18 – 34 year olds live at home with their parents. Bond originator, BetterBond says it assisted almost 34,000 buyers to acquire new homes over the past 12 months, at an average price of R1.1 million. It said that the average age of these buyers was 37, and at an interest rate of 10.25%, the average monthly repayment on their loans is R8,631.
Coupled with the fact that you will likely not get 100% bond approval therefore some percentage of deposit down payment would be required, this illustrates how inaccessible purchasing your own home is to first time young professionals. It is no wonder words such as “Black Tax” or “Sandwich Generation” tend to be prominent in our society.
So what can you do with the little bit of disposable income you do have (if fortunate enough) to start an investment portfolio?
When asked where young working professionals would save a salary increase in the savings and investment monitor survey, next to saving it in a bank account (fixed deposit/money market), stokvels came up as the second most preferred method of saving disposable income.
Interestingly enough, increasing contributions to existing retirement funds or even starting up a new retirement fund scored lowest, even though 46% of youth (18 – 30) living in metros have some form of retirement fund in place (largely due to auto enrolment retirement schemes offered by many employers in the formal workplace).
One could argue that this shows lack of understanding and importance that millennials have for the retirement investment industry as they are more likely to save for short-term goals (5 – 10 years) than goals that are decades away.
So given this knowledge, what can the average South African do to build their balance sheet within the confinement of a savings behaviour which they understand and trust completely?
Perhaps the first step to understand and good news is that you do not have to start from scratch as a young millennial. With an existing cushion of R44billion circulating in the stokvel industry, one should look into their own family and immediate network to see if there are any stokvels they can join (see Stokvels 101: Is Group Saving For You for advise on performing an audit on a stovel before joining). Stokvels that have a bit of young blood injected in them tend to take on a little more risk and enjoy high value returns on investments made due to high monthly contributions and the capital already held.
Trust me, you would be surprised how many friends and family are keen for you to join their stokvel.
Buying actual property might be a challenge as a start for a new stokvel but nothing stops you from owning shares in a listed property shares. Barriers to entry here are low to non-existent plus as a group you don’t have to worry about municipality rates and taxes (if own property) or tenants headaches.
Related: Stokvels Enter the Digital Age
Just do your homework on the desired property shares and if needs be, nothing is wrong paying a little school fees to a wealth financial advisor. Given you are paying as a group rather as an individual, you will likely pay a fraction of a cost (the power of group buying).
If your balance sheet is already weighed more by debt than assets then you might want to consider a using your rotational pay-out stokvel to reduce if not clear your debt. This form of stokvel arguably is the oldest stokvel type but yet the most powerful.
A counter argument to such a stokvel would be why not put that money on your own for same period and reduce your debt once the saved amount reaches a required lumpsum. My response, peer pressure and accountability to others that stokvels bring can never be replaced. And perhaps this is the secret of building a positive balance sheet for yourself even with little disposable income. Stop seeing it as a one man/woman job but start seeing it as a collective effort.