In East Africa, they are referred to as ‘chama,’ ‘ayuuto’ in Somalia, ‘gam’eya’ in the Middle East, ‘cundinas’ in Mexico, ‘tanomoshiko’ in Japan, and ‘pandeiros’ in Brazil. In South Africa, though, we refer to these informal savings groups as stokvels.
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Stokvels have long been a cornerstone of South Africa’s savings culture, providing South Africans with a community-driven approach to financial planning. Essentially, members contribute a fixed amount of money into a communal pool and receive their payouts on a rotational basis.
While the goals are usually short-term, like clearing debt, putting down deposit for a car, or paying for renovations, there’s growing potential for these groups to harness their collective power for long-term investments.
If you’re interested in how you can maximise your group savings into something more meaningful and long-term.
The Power Of Group Savings // Stronger Together
Stokvels represent around R50 billion in annual savings from around 11.6 million members. Think about that figure. Think about what could be achieved through the combined power of all these members. Whatever you’ve imagined, the possibility is probably far greater and it’s primarily because of the way in which they function.
Stokvels rely on trust, honesty, and importantly, a shared responsibility between members. By pooling resources, evaluating the opportunities, and sharing intellectual property, these groups are more than capable of creating more opportunities for wealth-building and seeing greater returns on their savings. For example, purchasing properties in order to generate rental income and long-term capital growth. There are also the more financially complex examples, such as investing in unit trusts or exchange-traded funds (ETFs) which would generate higher returns.
Transitioning From The Short To The Long Game // Making The Transition
Clearly, assuming a collective, disciplined approach could unlock incredible financial opportunities, help members build wealth, and secure their financial futures. The big question is, how can a stokvel successfully transition from short-term to the long-term game?
The bigger picture involves three main steps, starting with the fact that all members must understand both the benefits and risks of long-term investments. It can be extremely valuable to bring a financial advisor on board to help guide these decisions and participate in workshops so that everyone has the same level of education.
The next objective is to define the long-term goals. The group needs to make absolutely sure that the purposes are understood and agreed upon. For example, does everyone agree that the goal is to simply build wealth, to generate income, or to create a safety net?
The third suggestion is to consult professionals. You know, meet with a few financial advisors to find the right match and then engage their services to work with the group, explore investment options, and make decisions suited to your risk profile and savings goals.
Feeling informed?
Stokvels typically serve social and economic purposes within communities, helping individuals save for relatively smaller goals such as funerals, weddings, or groceries. However, if you take the time to invest in group education, clarify the wonderful world of long-term investments, and consult a professional, your stokvel could certainly and successfully aim higher.
We trust that this information has been helpful. Don’t forget that AA Inform is home to a range of useful financial tools and resources that can assist you along the way, including access our Loan Repayment Calculator, property valuation reports, and much more.
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