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South African Responsible Gambling Foundation

Money Issues - Planning a Purchase

BlackboardBy the end of this Unit you will be able to:

  • What is saving?
  • Banking in South Africa
  • Planning your own saving

Topic 1: What is saving?

Earlier we spoke about having a surplus of money at times when our expenses were less than our income. There are different things we can do with this money. Sometimes we will buy some small luxury that we might enjoy immediately. Other times we may put aside the money and add to it every time we have a surplus, in order to buy something we really want but can’t afford immediately.

The first way gives us immediate gratification or pleasure. The other way, saving our money, will ensure longer term gratification.

Word Box:

Gratification:  something which pleases or satisfies you.
Short-term:   immediately or straight away
Long-term:    long lasting, into the future

If you save some part of each amount of money you ever get, whether this is your earnings; a gift; or a bonus; or a payout from a stokvel, you will find that when you see something that you really wish to own, you will have the money available to buy it, without relying on micro-lenders or your employers.

Activity 1: What would you do?
Pairs

In your pairs, discuss the following two scenarios:

Scenario 1:
Gogo Siya gets R1100 a month from her Old Age Pension. She lives with her married son but has to pay towards her granddaughter’s school fees an amount of R500 and contribute R450 per month towards food and electricity. She goes to her Church once a week which costs her R100 per month on taxi fares.  This means she generally has about R50 left over towards the end of the month. Any money that she has left she uses to play at the Slot Machines at the local Casino which she really enjoys.

Scenario 2:
Priscilla who has just had a baby earns about R900 a month from helping her neighbour run a crèche. She also has to pay for her younger brother’s taxi fare to school which comes to about R550 a month. In addition she spends about R250 a month paying accounts for her bedroom furniture and her son and baby’s clothes. This means she has about R100 of “disposable income” each month. A year ago she read about a very interesting sounding course in Early Childhood Development at the local college which would cost an amount of R1200 to enrol in, after which you could be awarded a bursary. She decided to join a Savings Club or Stokvel and put aside R100 a month for a year (R100 x 12 = R1200) in order to have enough money to enrol in the course the following year.

When you have read through these two scenarios, discuss the following issues with your partner.

  • Who chooses short-term gratification?
  • What are the advantages, if any, of this short-term gratification?
  • Who chooses long-term gratification?
  • What are the advantages, if any, of this choice?
  • Which woman would you think is being most sensible?
  • What would you do? Behave like Gogo Siya or like Priscilla?
  • What would you buy if you had saved R1000? Discuss why you would choose this particular item with your partner.

When we are only saving small amounts of money we may not use a bank, but simply keep our money in a safe place. If however you are seriously saving money, it is a good idea to open a bank account and deposit the money there each time you have a surplus. We will look at some advantages of using a bank account in the next Topic. For now simply be aware that your money will be safe in a bank and can even be added to if you keep it there for long enough.

Talking Point!

Some people think that a good way to spend less is always to buy the least expensive clothing and household items like TVs, CD players, music systems and so on. Other people believe that paying for good quality stuff may save you more money in the long run, because good quality items may last longer. What do you think?

 

Some reasons for saving:

Here is what financial experts advise people about saving:-

  • Saving money helps you when you need money for emergencies
  • Saving money gives you financial freedom from others
  • Saving money from an early age helps you as you grow older to be financially responsible
  • Saving from an early age is good for planning and discipline
  • Saving makes you feel secure and less stressed about money
  • Saving gives you a sense of pride and independence
Word Box:

Emergencies: events that happen without warning that need immediate attention
Financial: to do with money.
Responsible: acting thoughtfully and knowing that your actions are well thought through and you can answer for them
Independence: not relying on others
Stressed: anxious; worried, not relaxed

Topic 2: Banking in South Africa

In the first Unit we looked at a brief history of money. You will remember that we said the earliest forms of money were shells and beads. If you had a lot of shells (money) you would want to keep them in a safe place so no-one else could take them, People nowadays who have valuable items like gold coins, jewellery, and so on, often put these valuable items in a special container made out of very tough steel, that is hidden in their house – this is known as a safe. The earliest forms of safes would have been containers in which our ancestors hid their shells.

Some people in those days may have many shells while others had fewer. Those with fewer may have asked those with many to lend them some shells for a certain amount of time, until they had traded more goods and could pay them back. If a person agreed to do that, he or she may have asked for an extra shell to be added to the number borrowed, when he or she was paid back. The idea of a payment for borrowing money is known as “interest”.  So nowadays we can borrow money from banks but we then have to pay it back with interest. In other words if you borrow R1000 from a bank, you may have to pay back an extra 10 %, that is an extra R100, when you pay it back. You would then have paid interest.  

In the same way, if you put your money in a bank, it will pay you interest. This is because the bank will need your money to lend other people money. The people the bank lends money to will pay the bank back at a higher rate of interest than the bank gives you for putting your money in the bank’s care.

Did you know?

Ayanda has been a Director of Pumla Plants for 6 years. At the moment she earns R8 000 a month which she banks. She decides she wants to buy a house so that Sipho her younger brother can come and live with her. She goes to the bank and asks them for a loan to buy this house she has seen. The house is in a good area, has four bedrooms and costs R450 000. The bank look at what she earns now and asks to look at the accounts to see what she will be earning in a few years time. They decide that because she will continue to earn more and more every year to lend her the money at 15% interest to be paid back over 25 years. This works out to R5 764 per month. In order to help her with the paying back of this loan (which is known as a mortgage bond) she rents out 2 rooms in the house to Sally and Suresh for R1 500 per month each. In this way she can afford the mortgage payment every month. Any money she has she saves in a special account which earns her 12 % interest a year , this means for every R1 000 she saves she earns R120 in interest to add to this, The bank decided it was safe to lend her the money because she manages her money well and is therefore a safe bet.

You can see from this that banks exist to help people pay for large items like houses and cars. Banks however also need to make money so they charge a higher interest on the money that they lend out, than the interest they pay when you put your money in savings accounts as we mentioned earlier, above.

Did you know?

History of Banking In South Africa
An early example of a bank in South Africa, and certainly one of the oldest, is FNB or First National Bank. First National Bank can trace its origins back to 1838 with the formation of the Eastern Province Bank in Grahamstown. In the 1830s, sheep farming in the Cape made a lot of money for some people, with wool becoming the region's first item to be sent overseas to be sold (exported). Farmers, merchants and traders in the area pushed for the formation of banks that would grant them their own financial freedom. As a result, the Eastern Province Bank was opened in Grahamstown in 1838. In the 1860s, wool prices became very low, mainly due to severe drought and increased competition from Australia. Small banks that depended on surrounding farmers and traders looked at joining together in order to survive. In 1874 the Oriental Bank Corporation, bought out the Eastern Province Bank. The Bank of Africa was formed in 1879 to take over the Oriental Bank Corporation's business in South Africa.
Adapted from a Web article on FNB

Standard Bank in South Africa also started many years ago, It began in 1862 when a group of businessmen led by John Paterson formed the name Standard Bank of British South Africa in 1862. The bank started up in 1863 in Port Elizabeth, South Africa, and soon after opening it joined with several other banks including the Commercial Bank of Port Elizabeth, the Colesberg Bank, the British Kaffrarian Bank and the Fauresmith Bank.
The word "British" was dropped from the title in 1883. When gold was discovered on the Witwatersrand, the bank grew as it moved north and on 11 October 1886 the bank started doing business in a tent at Ferreira's Camp (later to be called Johannesburg), thus becoming the first bank to open a branch on the Witwatersrand gold fields. On 1 November 1901 a second branch was opened in Eloff Street of Johannesburg.. Today the Standard Bank is a very large bank in South Africa. It also has branches in the rest of Africa.

Activity 2: What happened when?
Pairs

In your pairs, draw a time line that shows the development of the two oldest banks in South Africa, FNB and Standard Bank.

These are the dates you must include:-
1883               1901               1886
1862               1838               1874
1879               1830s              1860s
You should illustrate your timeline so that it looks interesting,

Topic 3: Planning your own saving

Many people think that it is never too soon or too late to start saving. As we said earlier if you save 10% of all money you ever get you will soon be able to afford things you really want or need, whether these area dining room table; school text books for your children, new shoes for winter; money for an extra room on your house, clothing or helping towards your own future educational costs. Read the Case Study that follows to see one person’s early experience of saving.

Did you know?

Case Study of Early Saving Experience

When I was in primary school in New York City, in America, we used to be able to bring in coins each week that we privately put into small brown envelopes with our names on it. The school kept track of our savings (the funds were actually deposited in a savings account at a local bank and earned the going rate of interest). When I moved on to high school, I was able to take several hundred dollars with me. This was the first banking experience that many of us enjoyed.

If you have children you should remember that although today, that option no longer exists, you can help a child experience the savings process by setting up a savings account at a local bank.
This will help teach young people two very important things:-

  • Where money is kept. While most of the bank's money isn't physically all at your local branch (it's reinvested in other assets, such as loans to customers), the bank is still the place where deposits are made.
  • What interest is all about. Interest is income earned on your money. When a deposit is made in a bank, you essentially are giving the bank the use of your money. The bank lends it out as mortgage money or for other loans and then charges the borrowers interest. For the use of your money, you earn interest.

Bank savings accounts show young people some very important things about managing money. These concepts underlie any type of investment decision’s young people will make throughout their lives.
Adapted from: http://life.familyeducation.com/money-management/money-and- kids/48121.html

 

Talking Point!

Gambling is often seen as a terrible waste of money. Some people cannot stop gambling once they start – it becomes like a drug or like drink to them and they get addicted and are unable to help themselves. Many people however see nothing wrong in buying Lotto tickets for between R5 and R10 a week. There is always the chance (one in millions!) that you could win and it is seen as fairly harmless. What do you think?

In the Activity that follows you are going to do two separate things, both of which should help you feel keen and interested in starting to save.

Word Box:

Essentials: things you really need
Motivated: really keen to do or achieve something.

 

Activity 3.1: What I want
Individual
  • Working on your own, brainstorm some ideas of things you would really like to own but cannot afford. These could be items of clothing, a radio, a TV, an expensive magazine, a two plate stove, and so on.
  • When you have completed your list, which should contain at least four items, arrange these items according to their prices. Start with the least expensive and end with the most expensive.
  • Leave two lines between each item.
  • Next to each item write down the cost of the item.
  • Now, in the lines you have left write down two sentences about why you want these items, why they are important to you.

Activity 3:2: How I will get what I want

  • What you now have to do is work out how much you have to save in order to be able to afford these items you want,
  • You will need to make a list of all the money you think you will get in the next six months to a year.
  • Then you will need to make out a list of the necessities you will have to buy.
  • Take away the total of the necessities or essentials, from the total of your income.
  • See how much you have left on a monthly basis.
  • Now work out for how long you would need to save before you could buy the items you really want.
  • Remember that if you put your money in a savings account you could earn some interest on it, up to about 8% a year.
  • If you still have a very large shortfall, think of some ways you could possibly get extra money – maybe you could make a deal with your employers or that if you did overtime you could earn more; or think of something that you are good at like gardening and think of planting and selling vegetables and so on. What you must remember is that if you want something really badly you need to be motivated to work for it.

Remember that it is important to learn to be careful with money from an early age but that it is never too late to start! . The more you develop good habits to do with money now, the fewer financial problems you will experience later. If you are just starting your working life you should be aware that Banks encourage young people to save so they often offer special deals for younger customers. You may want to find out about these special deals.  Likewise Banks offer special deals to old age pensioners and the over 60’s.

Self Assessment Checklist

  • I can now briefly describe some ideas about saving
  • I can now outline the history of certain banks in South Africa
  • I now know more about how to plan my own savings.
  • What did you enjoy most about this Unit?
  • What did you enjoy least about this Unit?