Financial fragilility in South Africa

What is it about?

People who don't have access to emergency savings are vulnerable to financial shocks. This study looks at the differences between those who have emergency savings and those who don't to understand who might be more vulnerable to financial shocks and what policy interventions could be helpful. The study also looks at whether different factors play a role in low-income households compared to households with higher income levels. Previous studies of emergency savings have mainly focused on the developed world, so this study uses data from a South African national survey to provide insights from a developing world perspective. The study finds that confidence in financial ability (financial self-efficacy) rather than actual levels of financial knowledge differentiates those who have emergency savings from those who don't. In addition, something as simple as having access to a bank account is an important predictor of having emergency savings. In low-income households family structure played an important role as those who had fewer dependents and those who were married were more likely to have emergency savings compared to those who had more dependents or were not married.

Featured Image

Why is it important?

Previous studies of emergency savings have mainly focused on the developed world, this study uses data from a South African national survey, which provides insights from a developing world perspective, and allows the exploration of the phenomenon in low‐income households, as a large number of households in South Africa are economically disadvantaged. The findings of this study have several implications for both policymakers and financial practitioners. First, financial education programmes that focus only on enhancing financial knowledge levels may not be enough, instead the focus needs to shift to considering how to enhance financial self‐efficacy. Areas that can be explored include financial coaching and training that focus on building confidence. Second the importance of access to a bank account in an emergency savings context highlights the importance of financial inclusion. Emergency saving schemes, which include access to an account and matched saving, are some of the mechanisms that can be explored to promote emergency savings especially among low income households.