Life-stage financial mistakes to avoid


South African households, with more limited incomes in the current highly
inflationary environment, are nowadays caught between the rock of saving for a
comfortable retirement, and the hard place of leaving a legacy for their children.

Saving has long been punted as a necessary obligation for South Africans,
for whom frugal households had a fall-back during the global credit crunch, while
spendthrift households are now besieged by untold hardship.

"For any person, less external dependency means more freedom of choice,
while improved financial health not only increases present-day security, but also
enriches life and retirement planning,' says Schalk van der Merwe, Area
Manager at Nedbank Financial Planning, Nedbank Wealth.

Van der Merwe, a certified financial planner, who has been tracking
segmented consumer spending habits during a dedicated career spanning over
15 years, provides a broad breakdown of the spending habits of different South
African age groups, with simple advice to change behavioural patterns.


18- to 25-year olds: Irresponsible debt phase

Mistake: They generally take on too much debt - financing a new lifestyle, as
opposed to earning it, predominantly using credit to access student loans.

Advice: Starting to save early on in life is the best choice to reap the full benefit
of compound interest.

25- to 35-year olds: Good longer-term debt phase

Mistake: They don?t settle down early enough, and spend potential savings on
big car loans.
Advice: Generally, incomes are at levels to take on "good long-term debt" like
home loans. The difference between good and bad debt needs to be more
clearly understood.

35- to 45-year olds: Serious savings phase

Mistake: They often cash in their pension and provident funds to start new
business ventures and big home loans.
Advice: They need to apply more realistic thinking about the value of their
current asset base and what it will be worth in the future.

45- to 65-year olds: Silly debt phase

Mistake: Here, especially the empty-nesters spend their "child free" money on
new fancy cars or exotic holidays, without calculating what percentage of debt
has been repaid.
Advice: That disposable cash should be able to work for their future goals.


65- to 85-year olds: Low debt phase

Mistake: They become too conservative in their investment choices and don?t
keep track with inflation, wanting to just maintain their relatively comfortable
lifestyle throughout retirement.
Advice: The time value of money and the importance to understand their
personal cash flows vs. their life expectancy needs to be better understood.


Van der Merwe advises South Africans across all age groups to adopt some
form of long-term savings plan. "Every person should, in fact, have a short,
medium and long-term strategy in order to reach individual goals,' he says. "The
key is to set goals. A good financial plan, clear objectives and discipline will
determine how responsibly individuals manage their savings agenda.'

What do you think?
Is this an accurate reflection of the life-
stage financial mistakes?