Thinkpiece: Let’s not forget to count our blessings in SA

celebrate SADecember 17, 2010

Money was the global story of the Noughties. Mostly about making it, no matter how rudely. Since the 2008 Crash it’s been all about losing it. First playing the victim and then joining any lynch mob chasing “those greedy bankers” whose RemCos, CDOs, LBOs and other anagrams done us all in.

Now that we’re putting the Noughties plus one to bed, it’s still all about money. Not the old relationship of respect, love, even adoration. Now society seems to hate filthy lucre so deeply it is desperate to devalue the stuff. Cheer-led by America’s elected leaders, most of the world has been printing banknotes at rates that humble the former World Champion Robert “Who-cares-about-hyperinflation?” Mugabe.

Based perhaps on the presumption that anything coming from the West must be right, spin doctors at local banks have used this trend to pushing forward some of their more challenged talking heads. The kinds with big smiles and learned jargon, used in combination to overcome being dropped on their craniums as babies. Their message: South Africa must get with the programme. Our country, these overfed morons opine, needs “Quantitative Easing” (aka printing money US style). Immediately, if not sooner.

One time my breakfast almost jumped back out when an interviewer, nodding sagely, regurgitated the popular abbreviation for this theft (“QE”). She had probably heard it used many times in otherwise polite conversation. Use which seems to be giving the curse respectability. Somehow blanking away the reality that over-running the money presses is like playing economic Russian Roulette with a full chamber.

When I got thinking a little more about this, it dawned that these are the same sages who preach to the rest of us about how we desperately need to save more (always more) for “retirement”. And how anyone who doesn’t stash away 10% of their take-home pay risks risking penury and dinners of bread and dripping in their old age.

I’m sick of know-it-all hawkers who have all the answers – usually driven by an ability to scare the rest of us into generating their sales commission. Especially as they’re working off data that’s as old as the telex machine. The world has changed. Dramatically. So why not get with the real programme as we enter this second decade of the New Millennium?

Consider, for instance, the concept of retirement.

In terms of human development, it’s a rather new concept, having been first mooted by Germany’s warrior Chancellor Otto von Bismarck in 1881. It became law eight years later with the German State agreeing to pay retirement and disability benefits one citizens turned 70. Perhaps as a motivator to its tired soldiers, in the middle of World Was One the retirement age was dropped to 65 – a milestone which the US’s President Roosevelt used when the US applied its own rules half way through the last century.

Retired Prussian soldiers which Bismarck commanded rarely lived long enough to enjoy their old age benefits. A century ago average life expectancy in the West was 50. So small was the number who lived to the age where retirement benefits kicked in that there was little drain on other taxpayers.

As mankind’s health education improved, so did sanitation, access to safe water and the exposure of unhealthy habits like smoking and too many braais. That’s caused a dramatic shift. The average middle class urbanite in the Western World now lives to 80, an astonishing 30 years more than his great grandfather. What was considered old age has become among one’s most active years. There’s more than a grain of truth in the saying that “50 is the new 30.”

And the rare is becoming almost commonplace. The world now houses 55 000 people aged 100 or older. With continued advances in medical science and greater awareness about health, in 20 years we’ll have more than a million centurions – and the number will keep growing. Already futurists are predicting that today’s babies born into middle income homes in civilized countries will a an average lifespan of 125 years.

Whew! See what I mean about taking stock of new information. And remember those who fail to plan are actually planning to fail. One needs not be an accountant to appreciate there’s no better time to take stock than near the beginning of a fresh year. So let’s do it.

First the really good news.

There are few better places in this topsy-turvy world than where you are right now, the good of Republic of SA. Our nation has largely sidestepped the disastrous leadership in lands which many of our brethren, strangely, still hanker for. Not strange really. Just unaware and suffering a little from the grass-is-greener paradox where, invariably, you only realize it’s a myth when you’re too far-gone.

Take our collective wealth. Before the 2008 Financial Meltdown, each one of our Rands would buy 7,5 European cents; 9 American cents and 6 British pence. Two years on and that’s improved to 11 European; 14,5 American and 9.25 pence. Doesn’t sound like much when you’re thinking pennies. Consider how a million rand today buys $145 000 rather than 2008’s $90 000 and you start getting the picture of how much our relative status has improved.

That dramatic improvement brings all kinds of benefits. For one thing, your dream holiday home is no longer within reach of a Manchester Brickie. And while on economic grounds only the uninformed would consider relocating from South Africa nowadays, isn’t it great to be able to consider that as an option which never existed before. Sometimes just knowing you could emigrate, and have decided not to, can transform one’s view about this magnificent land we inhabit.

It works the other way too. That top of the range laptop from the Apple Shop at the Louvre costs a South African R8 275 compared with R13 500 in 2008 Rands; a 32GB iPad is now R4 500 rather than the R7 250 which would hit your credit card at the old exchange rate (or, sadly, if you are foolish enough to buy from one of the local importers). Those are dramatic differences in anyone’s language. But as those awful TV ads remind us there’s more. Much more.

Here as in most parts of the world, most of what the taxman encourages us to divert into retirement funds ends up in the stock market. So whether you like it or not, you need to be listening to my radio show on SAFM. Because your nest egg and mine is determined by the way the Johannesburg Stock Exchange performs. (sorry for the unashamed punt, but my boss says my job is to bring in more listeners, so…..)

Shares can be very volatile over the short-term, but for the patient investor, there’s nothing to touch them over time. Which is why those paid to make the best returns on our money favour shares rather than property or interest-bearing deposits.

Over the last five years, the great American nest egg has gone absolutely nowhere. Share prices on the New York Stock Market ended 2010 almost exactly where they closed off in 2005. The often-admired Aussies are in the same static place while Brits have scarcely done better – shares in London are up 3.5% in the last five years. The debt-averse, ever-disciplined Teutons did rather better; German shares have gained 30% since 2005.

The Swiss are down 14% since 2005; the French have lost 18%. Then you have Dumb (Japan) and Dumber (Ireland) whose appalling political and economic leadership has destroyed much of their nation’s savings. Tokyo-listed shares have fallen 38%; Dublin’s a staggering 62% in the last five years.

At the end of 2005, The Johannesburg Stock Exchange’s All Share Index traded around 18 000. It closed 2010 in the region of 31 500. That, friends, is a gain of 75% – more than double the Best of the West. Or to be more graphic, ignoring exchange rates for a moment, if you’d started with a nest egg of R1m in Ireland and South Africa fives years ago, your local stash would have climbed to R1,75m; the Irish fund would be down to just R380 000.

And yes, there’s still more.

Philosophers tell us nations get the Governments they deserve. That said, instead of our national sport of Zuma-bashing, citizens here might consider for a moment how well our financial affairs have been managed through this turbulent period.

Peoples of the Western Hemisphere are struggling to absorb the impact of those massive bailouts of their overpaid, over-risked bankers and financiers. Plus those unprecedented stimulus packages created by running the money presses 24/7. Recent social unrest suggest the penny is starting to drop – Bush, Obama, Blair, Sarkozy and their supporters have been spending gazillions of their future tax takings to prop up their broken, lobbyist-directed establishment.

The full extent of the way they’ve mortgaged their national futures to get out of yesterday’s greed-inspired mess is reflected in part by the table below, drawn from the 2010 figures compiled by the International Monetary Fund’s 2010.

Each citizen’s share of the National Debt

in Rands in US $

SA R18 768 $2 753

Australia R91 642 $13 443

UK R192 746 $28 274

Switzerland R199 352 $29 243

Germany R212 598 $31 186

France R238 039 $34 918

Ireland R297 661 $43 664

USA R297 893 $43 698

* Source: International Monetary Fund

See what I mean about South African emigrants being economically uninformed? The one thing about debt is that someday it has to be repaid; but in the meantime there are servicing costs, which we all know is called interest. To use the extreme example, how illogical for someone to trade their share of under R20 000 in the SA national debt for 15 times heavier millstone by joining the Irish or Americans.

That’s a lot of big picture stuff to chew over as you do your annual financial review. But if you’re like me, this is the really important stuff. I find it much easier to start crunching numbers and planning ahead when the base is solid. When one understands which way the strong winds are blowing and how that’s impacting the community we live in. Much more difficult to plan from a fearful place.

So bearing in mind you’re likely to be healthier and live longer than your parents, best to throw away all those old retirement notes. The basic principle is that one needs a lump sum that’s 25 times our desired annual income. So if you believe you can live on R20 000 a month in retirement, that’s R240 000 a year and equates to a lump sum of R6m. The theory being that even if you draw down 4% of the capital every year, using conservative growth numbers the nest egg will still last 30 years. So retiring at 65 would take you to 95; after which you don’t really care much anyway.

But if you buy my idea that our improved health means we can continue earning well beyond 65, one can safely push out that retirement date. We all know people who are having the time of their working lives deep into their 70s, even 80s. Working because they are healthy enough to want to – not because they have to.

So my advice? Tell the scare mongers to take a hike. South Africa is not Zimbabwe. Nor will it ever become like that accursed land. We’re growing richer as a nation because of some of the most sensible economic management on earth. So you can safely and happily plan to see out your latter years exactly where you are.

And from a personal perspective, your nest egg is in far better shape than our unfortunate cousins in what used to be called the Rich North. Plus you won’t be entering the dusk of your existence carrying a deep resentment cause by shelling of out more taxes to pay for mistakes of people who gypped the system then, and judging by their homes, cars and incomes, seem to keep doing so now.

Viva South Africa. Viva.