I recently tweeted asking people to “Post your personal finance take that will get you cancelled”. Social media users will know that “cancel culture” is about losing support after doing something socially unacceptable, but I simply wanted to give people the opportunity to tweet controversial personal finance takes that ordinarily they would not share. The tweet got significant engagement and I’d like to focus on a response I got from @Cairo_Mathebula, who tweeted: “Some people are just underpaid and no amount of budgeting [or] saving tips can help them.”
As an advocate for financial freedom, this certainly got me thinking. How can I preach about saving and investing when people have to cope with the high (and rising) cost of living, and are in constant survival mode? Can you save and invest on a budget or is it true that you cannot budget your way out of poverty?
Most people overestimate what they can do in one year and underestimate what they can do in 10 years
— Bill Gates
When it comes to income mobility, the Organisation for Economic Co-operation & Development (OECD) undertook a study in 2018 titled “A Broken Social Elevator? How to Promote Social Mobility”. Unsurprisingly, income mobility is higher for those in the middle class. For example, in low-inequality, high-mobility countries such as the Nordic states, it might take only two generations for children from the bottom earnings decile “to attain the level of mean earnings” while in high-inequality, low-mobility emerging countries such as Brazil, Colombia or SA, this mobility could take as much as nine generations — or about 300 years.
The OECD advocates access to high-quality early education and care, investment in health and “family policies” — those that level the playing fields for all children. It implies big interventions from the government, but I’d argue that individuals can still take a few small steps to change their children’s futures. A quote by Bill Gates comes to mind: “Most people overestimate what they can do in one year and underestimate what they can do in 10 years.”
So, say an investor has only R100 disposable income to invest, monthly, over 10 years. At an 8% return (what investors can earn from SA retail savings bonds, for example) that R100 will be worth R18,128 after 10 years. That doesn’t sound huge, but if we assume that there is an annual increase in contributions of 10%, that figure over a 10-year period becomes R27,206.
It’s true that poverty is an income problem and it’s exceptionally hard to bridge the income inequality that exists in SA. But, little by little, investing something can go a long way to securing long-term financial wellness by creating a buffer, so that the next generation does not have to start off worse than the generation before.
* Mukumbo is a financial literacy enthusiast and investor
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