Going zhuzh

Stokvels, the traditional community-based saving scheme is going upmarket as different income segments embrace the concepts that many have held dear for generations.

More and more people adopting the principles of community savings are doing so for purposes other than what was the accepted norm some years ago.

Whether higher earners and professional people are taking to the concept of group saving because of the tightening economy that is digging into even their pockets, or because they find it great to benefit from a lump sum pay out so that they can meet major obligations has yet to be better researched.

What is obvious, however, is that savings and investment clubs are now becoming more and more common. At Standard Bank we see stokvels being formed to help members participate in various investment vehicles, including property and the JSE”.

Individual contributions are determined by what people can afford, however, once committed, members are determined to contribute without fail.  After all, having a number of like-minded individuals with a common objective ensures that you are part of a significant monthly contribution into an investment.

There is no doubt that many of the new stokvels being registered are as tradition dictates, being used to apply the time-honoured principle of helping members handle major family and financial needs. These include pocket-draining projects like paying school and university fees.

Then of course, other savvy stokvel members are using their rotational payments to make a dent in their personal debt. Even if you are paying off a car on a monthly basis, it is great every so often to pay several thousand rand into the account at once and reduce the balance and interest owed.  Putting extra money into a bond has the same impact. The benefits are great as not only is the balance on the loan reduced, but paying in advance means you can shave significant amounts off the total interest bill on a house and reduce the life of a bond by several years.

So why would people who have some disposal income turn to stokvels?

The answer lies within the things that make stokvels great. These are:

•  Stokvels are a great way to avoid temptation and force yourself to save as you make a monthly monetary obligation to a group that must be fulfilled.
•  It’s hard to just withdraw from a stokvel when all the members are your friends.
• Stokvels are easy to set up and banks have special accounts for group schemes.
• Members nominate Chairpersons and Treasurers from within the membership. Members know that the people looking after their hard-earned cash can be trusted.
• Everybody is working towards a common objective, which is safeguarded by a stokvel's constitution, making the achievement of purpose fun and a topic of friendly conversation.

It’s really all about the wonders of peer pressure.  It is easy every month to find a reason not to save. But, when you could disappoint fellow members or even alienate friends by not meeting your obligations, the picture changes significantly.

Whilst stokvels provide a wonderful opportunity for people to save together for a common goal, people always need to be careful as to what they are getting into. Should anyone wish to join or establish a stokvel, they need to take care of the following:

•  Be clear as to what benefits you will receive, how regularly, what amounts – a copy of the constitution will provide clarity on this.
•  Be mindful of promises that seems too good to be true – if it sounds too good to be true, it very often is.

Regardless of the income level of customers looking to invest in stokvels, the schemes are proving their worth and creating communities of savings-orientated people. This is something to be encouraged in a country with a weak savings culture.

Riaan Appelgrein, Senior Manager, Customer Financial Solutions at Standard Bank