Article for FANews from Consumer Assist  (researched and written by Charlene Smith Communications) 

The Economist on Valentine’s day this year ran “a lament for savers” noting that “those who have lived within their means and put money aside for the proverbial rainy day, have seen interest rates slashed.”

It gloomily continued, “those who built diversified portfolios (another hallmark of prudence) will have suffered losses in equities, property and corporates. Even those clever enough to keep their money in cash have had to fret about the security of banks.” It notes that while over-spenders have been bailed out by governments, the careful have seen their savings decimated.

Debt has become a global horror story – the United States of America is shedding more than 600 000 jobs a month and even rich Japan has laid off workers. Toyota, probably cleverly, is not firing workers, it is using short working weeks to retrain them.  In the US an estimated 15% of companies have asked employees to agree to pay cuts to avoid being laid off.

In South Africa economists warn that we’re probably heading into choppy seas toward year’s end. Liquidations are up and consumer spending has constricted but investment banks like Investec report increasing retail investor interest. Commercial banks say they are seeing a slow pickup in interest in savings accounts.

Robert Kiyosaki, author of Rich Dad, Poor Dad, a top selling finance self-help book says he does not believe in savings, but in investing.  And Hendrik du Toit, CEO of Invest Asset Management said in late April: “cash is going to become an asset with a disappearing yield.” So while cash was a virtue a few months ago, it could become, in the Obama phraseology a toxic asset.

So if money under the mattress or fixed savings are no longer a good idea, what is?

Simon Howie of Investec noted in late April that “credit markets were a leading marker coming into this financial crisis.” He says credit outperforms equities and should be part of an investment portfolio. “The best time to buy risk credit is when defaults peak – we expect that to happen later this year.”

Andre Snyman, CEO of Consume Assist, South Africa’s largest debt counselling organisation agrees. “There is a lot of contradictory economic data coming out but the underlying message is that consumers are in trouble. In the beginning it was low-earners who were most financially stressed but the biggest problems being experienced now are among the corporate elite, those who earn R700 000 plus a year, according to research from the University of Pretoria.

“Many of those people dramatically over-spent and put too much money in shares, some have seen their portfolios wiped out.  Some of our debt counsellors are dealing with individuals who are millions of rand in debt.” Even Vogue, the magazine beloved by the rich and famous has started two new features: “More dash than cash” and “Vogue thrift chic.” Two of their ‘thrift chic’ tips: “Save on botox – cut a fringe” and “make your own popcorn, put it in paper grocery bags and take it to the cinema.”

National Credit Regulator CEO, Gabriel Davel said in the 2008 NCR annual report that a debt stressed person should discuss how to restructure debt with their bank, but he observed: “The unfortunate reality is that in a great many instances the different divisions or product lines of certain banks are unable to reconcile their competing interests, effectively allowing aggressive debt collection by credit card or motor vehicle divisions resulting in default on mortgage repayments.”

So how do you climb out of the hole?  If you are severely financially stressed - and www.consumerassist.co.za has a financial calculator will help you assess that - then you need debt counselling.  If you’re not and want to avoid creditors banging on the door and taking your home; first stop spending, take time to reflect, read every financial article you can and when totally confused understand that so is everyone else right now, there are no ‘sure-bets.’ We’re all travelling without maps.

If you have money to invest then look at unit trusts or corporate bonds. Du Toit says that “government bonds will in due course be the most dangerous bonds” anywhere in the world.  It is generally accepted that emerging markets – like South Africa are providing the best returns on investments – but South African regulations ironically prevent the ordinary man in the street from investing in those markets, only corporates can.

Time magazine recently said that one of the top 10 trends of the future will be that Africa will become the place to do business. So things are looking bad and another storm may be brewing, but think of it like this: rain always washes away dust.