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It’s no secret that many South Africans are big spenders but not big savers. This is why, during National Savings Month, Sanlam encourages South Africans to re-examine their relationship with money to understand that it’s not what you have, but rather what you do with it that counts. But how do we start changing our financial mindsets? We talk to the experts about what factors drive our spending, poor financial decision-making and take a closer look at what conspicuous spending and saving means.

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Find out more about our National Savings Month campaign

What drives conspicuous spending?

We chatted to international expert, Annamaria Lusardi, the Academic Director at the Global Financial Literacy Excellence centre, about her views on what drives the culture of conspicuous spending.

Lusardi explains that conspicuous spending is when we spend money to buy luxury goods for “status” and to elevate our social standing. Whether we like to admit it or not, we’re all guilty of buying things we don’t need, in order to keep up with those around us.

The culture of conspicuous spending is driven by daily messages from brands and institutions to buy goods and spend more. “We live in a world where the economy relies on people to spend, and so we are constantly bombarded by messages to consume,” she explains. “Things that we don’t really need become necessities because we are told over and over again that immediate gratification is normal.”

Another big contributor to our perception that it’s okay to live beyond our means is social media, mostly through the posts of celebrities and influencers. “In the past, the only way we knew about what people in other countries were doing, came from watching TV, notes Lusardi. “Now we have access to more and more information about our peers through Facebook, Twitter and more…” “We see others behaviour on a daily basis and think – ‘everybody else spends’ and so we should too.”

The biggest problem with this trend is that we tend to spend money to gratify our immediate needs, rather than long-term ones like buying a house or saving for retirement, which affects the economy as a whole because it means less savings and domestic wealth, and ultimately, “leads to a nation that is indebted and unhappy as they have no real future prospects”.

How we fall into the trap

How do we find ourselves in this position and why is conspicuous spending becoming such a damaging trend? Lusardi explains that in many countries, the rate of savings has decreased, but she believes this is tied to our increasing access to credit. “Before we had credit cards we couldn’t buy all the goods we wanted, unless we had the cash, but now it’s possible to do so,” she elaborates.

Technology has also allowed us to spend without much thought. For example, Internet banking is instant and being able to “mindlessly swipe” a card is easy to do, without really thinking of the long-term consequences. More than ever, young people have “the power of spending” because they have grown up with access to credit and they have become conditioned to believe that gratification is valued over saving.

How do we change this mindset?

Lusardi says that not everyone is a natural saver and education is the key to teaching the young especially, to change their attitudes. “We need to make them mindful of the future and teach them that happiness today may come at the cost of being happy tomorrow.” Education early on can make us better equipped to make the right financial decisions. “Young people need to understand what budgeting is, how interest works, to plan for the future – and make sure their money grows,” she notes.

We also need influencers in society to reinforce the notion that saving is something to be proud of. Role models have a responsibility to change mindsets of the people that look up to them and use social media to send a positive message about conspicuous saving.

Steps for real wealth

We asked Cora Fernandez, Chief Executive of Sanlam Investments Institutional business, for advice on how to break the cycle of conspicuous spending. Here are some tips to make sure you grow your long-term wealth and attain the things you really want in life…

Tip 1: Realise the value of planning over gratification

“Focus your attention on what you want to achieve or acquire two to three years from now that’s tangible – like buying a house,” advises Fernandez. That way you’ll start to see saving as a tool for long-term gratification over a short-term splurge that might make you happy today, but sabotage your dreams tomorrow.

Tip 2: Create a roadmap for your life

Decide what your goals are. They don’t have to be retirement goals as that may be too long-term to relate to – start by figuring out what you want out of life in the next few years. “If you relate financial planning to how you would plan for your career, you’ll be able to understand how it works,” suggests Fernandez. “So you would decide on a career then take steps like job shadowing to get there.” Also look at “the hurdles you need to overcome to get there,” like getting out of debt first. You then need to be willing to take the right steps to get to your goal.

Tip 3: Educate yourself on what financial planning means

“Rich people only get rich because they save and plan ahead,” admits Fernandez. Adopt a culture of saving and then find out what vehicles are available to you to invest your hard-earned cash based on what your goals are.

Need advice about your own financial planning?
Contact your Sanlam financial adviser or broker, call 087 350 9075 or visit Sanlam BlueStar to find an adviser near you.

 

 

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