Tips to turn your Stokvel into an investment engine
Stokvels are on the move: moving from villages to cities, from mattresses into savings accounts and investment instruments. And as they move, they evolve and their potential for growth and their ability to create wealth increases.
“Stokvels have progressed in both the way their role is perceived and in the way they operate,” says Sanelisiwe Nkuta, Head: Foundation Market at Old Mutual Mass and Foundation Cluster. “While they continue to play a key role in our communities; the arrangement of stokvels is increasingly reflective of changing social dynamics. These include expanded definitions of stokvels as hubs for socialising, helping to reduce costs, realising shared goals – like savings for holiday travel, building commitment and spreading financial education.”
As South Africa’s R45 billion stokvel industry continues to grow, more and more financial solutions are being designed for the nation’s stokvel groups, now estimated to be over 800 000. “The fact that stokvels are evolving into a modern savings solution is positive news,” Nkuta says, “but it is very important that members do their homework and ensure their stokvel solution is efficiently structured and geared for growth.”
The Old Mutual Savings and Investment Monitor found that just over half of black Old Mutual Mass and Foundation Cluster (MFC) consumers indicate they have unbanked cash. This is significantly higher among 18-to-29-year-olds (68%) and much lower among older retirement facing consumers (28%). More than a quarter of black metropolitan working households prefer to save using a stokvel or savings club. One in 2 Black MFC consumers have a stokvel, of which 61% have more than one. An average of R1214 is contributed to stokvels a month, trending up since 2018. There’s also been a 33% increase in number of stokvels and monthly contributions, from 28% in 2017 to 61% in 2022. This challenges the perception that stokvels are still predominantly a lower income phenomenon.
Contributions of this size need a well-thought-out strategy to build future wealth, Nkuta explains. “The increasing buying power and growing stokvel footprint empowers members to demand more from service providers, including financial education, advice and platforms that will grow the stokvel and enrich the overall experience. These add-ons should contribute to members’ ultimate goals for the stokvel.”
Below are tips on how to turn your stokvel into an investment engine:
1. Get the right advice
When it comes to money – your own or your stokvel’s – it’s important to get the right advice to ensure you’re on track to achieve your goals. The financial knowledge and experience of your co-members may vary a lot, which could make it difficult to agree on the right savings strategy and select appropriate solutions. A qualified financial adviser can help you put a targeted plan in place that meets the needs of all the members of the stokvel.
2. Save with purpose
According to the 2022 Old Mutual Savings & Investment Monitor, 56% of stokvel contributors are saving for a rainy day, while313% are saving for school fees and education expenses. Understanding the underlying motivation for saving is an important factor in deciding which tools to employ to reach your target.
Remember that the cost of debt increases over time. So, for example, if you save R1 500 every month to pay off a debt of R18 000 at the end of the year, you need a savings mechanism that yields enough in interest to match the accumulated interest of the debt at repayment. Similarly, if you are saving for a rainy day, you need to be aware of inflation rates, increasing costs of living and any VAT reforms to ensure that you are saving enough.
3. Get more out
Stokvels are popular because members are obligated to contribute. But prioritising returns is as important as encouraging savings. Members need to get more out of their investments, otherwise they may as well be saving their money under a mattress with no opportunity for growth.
4. Empower members
Every stokvel member has the opportunity to play an active role in their club. Seek out a specific investment solution that offers value-added benefits that empower members through, for example, financial education. Apart from being simple, transparent, cost efficient and flexible, financial solutions also need to add value to members. A product like the Old Mutual Invest Flexible Plan offers much needed guidance in the form of ongoing educational workshops and support.
5. Benefit from tax-efficient solutions
The South African government encourages saving by offering tax benefits on certain investments. This great opportunity for growth is often missed by stokvels. When deciding which savings or investment to use for your group’s contributions, remember to consider tax-efficient solutions like tax free savings accounts.
