Monthly Archives: July 2017

Parents to save for their kids’ school fees

With the start of 2017 looming, many parents may have started to consider the cost of their children’s school and tuition fees for the next school year. While families have a number of financial commitments to attend to every month, this is the time of year where school funds are often moved to the top priority to ensure that the family is financially prepared for the expenses that accompany a new school year.

Saving for a child’s education requires careful consideration and proper planning.

Here are some tips below for parents to ensure that they have planned appropriately for their children’s education costs:

Start early

Parents should start saving for their children’s education as soon as they possibly can. Many people do not consider, or are not aware of, the great advantages of compound interest, and how accumulated savings grow over several years when invested properly. By investing from an early age, parents will eliminate the financial worry of not having sufficient funds to give their children the best education possible, as the funds in their investment will grow every year.

Automate savings

The best way for parents to ensure they are regularly contributing towards their children’s education is to open a dedicated savings account and set up a monthly debit order. This way the parents will automatically save money every month towards this cause. However, they must have a strict rule in place to never withdraw any money from this account if it is not related to the child’s education.

Explore ways to get discounts

It is advisable to do some research and contact schools to find out whether they offer financial incentives that could result in long-term savings. Many schools offer a discount if the fees are paid as a once-off amount in advance. Some also offer a reduction when there is more than one child attending the school. These types of savings can make a big difference over an 18-year period.

Include education funding in the financial plan

It is important that parents include education funding in their overall financial plan. These expenses have to be accounted for as part of the monthly household expenses to determine how it will affect the family’s overall financial position. When it comes to developing financial plans, it is usually a good idea to consult a reputable financial planner who will be able to develop a solution for the client to ensure that they have provided sufficiently for their children’s tuition fees and related education expenses.

Africans work two jobs to make ends meet

More than one in three working individuals earning more than R5 000 a month earn an additional income over and above their normal job, an online survey suggests.

These individuals, referred to as “slashers” due to the “slash” between their job titles (communication manager/yoga instructor), are part of a global phenomenon where people supplement their main source of income for various reasons. American author Marci Alboher coined the term in 2007.

Conducted towards the end of June among a booster sample of 943 individuals as complementary research for the annual Old Mutual Savings and Investment Monitor, the survey studied the habits of working South Africans. Twenty-four percent of respondents indicated that they earned additional income by doing something that was vastly different from their current job. An additional 13% said they earned more money by doing something similar to their current job.

Lynette Nicholson, research manager at Old Mutual, says it is typically entrepreneurial, go-getters who become slashers, in part to ensure greater job security and because their income may not be coping with growing expenses.

The South African economy recently entered a technical recession with some corporates cutting staff and many households feel the pinch of a higher effective tax burden.

One of the slashers who participated in the research project was Matilda Harris, a printing business manager and water aerobics instructor.

“The reason I have two jobs is the economy has become very tight and I needed a bit of extra income,” she says.

Having two jobs also means that if the printing business does not make enough money her extra job can help pay the bills and vice versa. Any extra money will be saved, but because of economic pressure this does not always happen, Harris says.

Another slasher and participant, Thapelo Mogapi, a customer service supervisor and DJ, says the financial benefit allows him to provide for his kids and live a normal life despite the economic slump.

When survey respondents were asked why they had more than one job, 55% indicated that additional income helped them to maintain a comfortable lifestyle. Forty-five percent said they were saving for unexpected expenses while 43% paid off debt. Almost 40% said they struggled to make ends meet (see graphic below).

Common second jobs included catering, event planning, photography, tutoring, waitressing, selling Herbalife, running a gardening service or installing water treatment equipment.

While more than 60% of individuals indicated that they enjoyed having more than one job, 17% said it had a negative impact on their personal or family life. Almost 30% said they found it difficult to manage everything, while 42% said they didn’t really have time for more than one job, but needed the money. Only 14% said they did not really need more than one job.

Nicholson expects the percentage of South Africans who supplement their main source of income to rise in future, although she doesn’t want to put a number to it.

The main survey, which was based on face-to-face interviews with a 1 000 working metropolitan households, shows that South Africans continue to save too little.

Impersonator still at it with phishing scam

A marketing and sales team purporting to represent Old Mutual Financial Services has re-emerged and is offering fraudulent loans to the public at 5% interest in an effort to get hold of personal details and solicit upfront payment for the release of loans.

This type of phishing scam has become popular over the last few years, with fraudsters using the name of well-known, credible organisations to gain legitimacy. Moneyweb’s name was previously illegally linked to a similar loan scheme offered by “Moneyweb Private Banking South Africa”.

In November last year, the Financial Services Board (FSB) issued a warning against a scam called Skeme Finance Group which requested an “enclosure fee” from individuals before a loan could be granted. To pacify individuals getting wind of the con, the scheme issued a fraudulent letter using the FSB’s logo and a picture of the deputy registrar of financial services providers, Caroline da Silva.

Consumers are lured with promises of very low interest rates – typically no more than 5% per annum. Interest rates on personal loans at most banks generally range from 13% to 28% per annum. This makes the offer “too good to be true”, often the first warning sign that something fishy is afoot.

But shutting down these operators can be a long and cumbersome process and individual vigilance remains the best form of protection.

The Old Mutual impersonator, who calls herself “Melissa Green”, was offering loans to the public late last year, but despite Old Mutual issuing an alert and reporting the case to the police, “Green” was sending emails with a loan offer as recently as Monday.

A woman named Mary-Ann reported “Green” to the fraudalert website in January and although she did not lose any money (Green allegedly asked for R5 750 to cover attorney and insurance costs), she did share her personal details.

“I am afraid that they can do something illegal with it,” she wrote on the website.

Green’s number is still in service. When Moneyweb phoned the number on Wednesday, she repeated the emailed offer, highlighting the “special” interest rate and added that the offer would expire by the 15th. Scammers often put a clock on offers to put pressure on individuals to commit.

The acquisition of the db x-trackers book

Last week Sygnia announced that it had reached an agreement to acquire the db x-trackers exchange-traded funds (ETFs) from Deutsche Bank. The listed asset manager said that the deal was worth R320 million.

The news raised a number of eyebrows in the industry because while Sygnia has been a vocal proponent of index tracking, it has been critical of South Africa’s ETF industry. The company has consistently argued that ETFs do not offer a cost effective way to access the market.

However, Sygnia’s CEO, Magda Wierzycka, says that this deal is not an indication that she’s changed her mind.

“What I’ve been very critical of in the South African context is the cost of access,” Wierzycka says. “ETF management fees themselves are quite reasonable, but for an investor to invest in one you are looking at trading costs, stockbroking commission, bid-offer spreads, and the cost of investment plans, which all add another layer of cost. When you start adding all of these together, the fee is commensurate with an actively-managed unit trust.”

She says that Sygnia’s aim will be to reduce and even eliminate these fees for accessing ETFs, and offer them in as raw a form as possible.

“The annual fees on investment plans currently range from 0.7% to 1.0% per annum,” Wierzycka says. “We want to place these ETFs on our platform as close to no cost as possible. The stockbroking through Sygnia Securities will also be minimal – below 10 basis points.”

While this argument is persuasive, Sygnia will have to compete with platforms that already offer extremely low cost access to ETFs. Absa Stockbrokers, Easy Equities and SatrixNOW already offer discounted brokerage on ETFs and no annual fees.

In this market, Sygnia will have to find a way to differentiate itself.

Wierzycka believes that there is also scope to bring down the trading costs of ETFs through engaging with the JSE. In addition, Sygnia plans to speak to international market makers that could narrow the bid-offer spreads.

With competition coming to the stock exchange industry in South Africa, Wierzycka suggests that there may also be the opportunity to look at alternative listings.

“It will boil down to fees,” she says. “If other exchanges can offer these products and are willing to list them at lower cost then either the JSE will have to come to the party or we will look at the alternatives.”

An immediate challenge that Sygnia will face, however, is that the db x-trackers products are currently the most expensive ETFs on the JSE. Although their fees do work on a sliding scale, their initial total expense ratios (TERs) of 0.85% are nearly double those of the only other foreign ETFs listed on the local market managed by CoreShares.

These will almost certainly have to come down if Sygnia wants to continue to claim that low costs are at the core of its value proposition. It will also have to ensure that any new products it introduces will carry much lower fees.

“We would like to launch international bond and international listed property ETFs, as well as one that tracks our 4th Industrial Revolution Global Equity Fund,” Wierzycka says. “Then potentially we will start looking at the domestic market and might also launch some smart beta funds, for instance the Sygnia Skeleton funds wrapped in ETF structure.