With more than 11 million members, stokvels are South Africa’s oldest and most popular way of saving money. There are many new ways you can invest in these ubuntu savings clubs, and lots of benefits, too. Here’s how South Africa is saving – and spending – with stokvels.
About 30% of stokvels exist as savings clubs. “There are two things driving this trend,” explains Thandi Ngwane, head of strategic markets at Allan Gray. ‘People who struggle to afford monthly investment minimums, yet still want to earn long-term return on their savings, are managing to do so through a stokvel that invests. Secondly, stokvel members who have saved up a considerable lump sum are deciding to invest as a group in order to earn higher returns.”
The most common reason people invest in stokvels is to save for funerals, asserts Caskey Ndaba, who is chief executive of Decorum Capital. “Research shows that 65% of stokvels function as burial societies,” he says. Because many of the members don’t have access to formal banking, stokvels are an attractive way to pool their money together and give them peace of mind should they ever have to fork out for a relative’s funeral.
Around 21% of stokvels exist to save money for groceries. “In many cases, stokvel members are contributing towards birthdays and life events such as weddings,” says Ndaba. What is quite nice about this approach is that when the big day arrives, your stokvel friends will be there to assist with everything from cooking and setting up to even clearing away things afterwards. Many members also come together to save up for costly January school expenses, such as uniforms and stationery.
If your stokvel is functioning as an investment club, it’s important that your money achieves a return higher than 5% to beat inflation. “Bank accounts are suitable for stokvels that have short-term objectives,” says Ngwane. “But once the objectives take a longer-term focus, say between three and five years, stokvels should consider looking for alternatives.” Good options include unit trusts and the recently introduced tax-free savings accounts.
These days there are also emerging stokvels that cater for slightly more sophisticated tastes. Joburg-based Babalwa Nonkenge used to linger outside Le Creuset shopfronts, but could never afford to go inside to buy one of the expensive cast-iron pots. Now, after joining a stokvel, she can. “There are three of us, but we hardly ever meet. Every month we transfer money into the person’s account whose turn it is to receive payment. In this way, you’re able to buy things when it’s your turn.”