March 17, 2010
By Margarete King
Overspending; undersaving – they cause distress to honest, hard-working people everywhere. But humans are far more adept at rationalising their greed while making irrational buying decisions than they are at living within their means. We happily pull the cashmere over our own eyes, telling ourselves we are saving while we are in fact blowing apart our rickety little budgets like a black Southeaster.
So Momentum’s save thru spend programme raised some uncomfortable questions for me. The opening page of its website gives the willingly wool-eyed pure licence to indulge: "You probably always feel a little guilty when you walk out the store with 15 bags of glittering fashion and other dazzling accessories. Momentum’s save thru spend takes away the guilt and now you can shop to your heart’s content." To me that sounds like the retail equivalent of waving a slab of Lindt chilli chocolate in front of a diabetic and saying: "Oh go on, it’s savoury."
But I confess to a soft spot for save thru spend’s pioneering spirit and incessantly upbeat approach. So I gave the Momentum credit card and garage card a four-month test-run. I also looked into, but did not try out, Old Mutual’s new credit cards, which allow you to save into a money market unit trust.
This is what I found:
If you have a qualifying Momentum savings product, such as a retirement annuity (RA), you can take advantage of your day-to-day consumption habits to boost your savings, and you don’t have to pay to join the programme or get a card in order to access some benefits. Products that qualify are a Momentum RA, Investo unit linked product, Health Saver (which helps you provide for out-of-pocket health expenses) and one of the FundsAtWork umbrella pension or provident funds.
A percentage of the money you spend at one of Momentum’s asset partners (such as McCarthy Call-a-Car), contract partners (such as Nashua Mobile) or online partners (such as kalahari.net) is paid into your savings product. If you tell McCarthy Call-a-Car that you are a Momentum client when buying a vehicle worth, say, R150 000 from it, you will have R1 500 paid into your savings product. (This retailer gives a 0.1-percent rebate on vehicles for R200 000 or less, and double that on vehicles over R200 000.)
But to get the most out of the programme you need a save thru spend card, which records your buying activity. There is a monthly charge, but the card gives you access to Momentum’s 30 or so card partners, and you will also be paid a rebate of 0.3 percent every time you use the card to pay for goods or services (except petrol) from a non-partner.
And if you don’t have a qualifying Momentum product, you can still become a save thru spend member and take the rebates into your card.
When the programme was launched in early 2005, members were identified by a plain magnetic strip card, but these are no longer recognised. The system was redesigned in 2007, and now Absa administers a save thru spend credit card (subject to your ability to afford it) and a cash card, into which you put your own money, Fränzo Friedrich, the head of Momentum save thru spend, says.
The cash card functions exactly like the credit card: you swipe and sign at any Visa-enabled till point.
You can load your cash card via an internet transfer, debit order or branch deposit, Doug Walker, the managing executive: Absa card division, says.
Your rebates can be paid into your card instead of a savings product, but it’s not the most money-wise thing to do, because the point is to save for the long term, not to fund next month’s shopping expedition. The savings available are determined by:
Whether you spend at partners or non-partners. At non-partners, you will receive 0.3 percent back into your card or product.
The size of the savings offered by each partner. For example, Spar repays one percent of what you spend if your savings are paid into your card, whereas Dis-Chem’s rebate is 0.4 percent.
Where you choose to have your savings paid into. You double your savings from a partner if you elect to have rebates paid into your savings product instead of into your card.
Whether you are a member of Multiply, Momentum’s wellness programme. If you are a member, you triple your savings if your rebates are paid into your savings product instead of into your card.
To help you keep a balance in life between receiving and giving, you can allocate part of your savings to one of four non-governmental organisations.
Every little bit helps
So, how did my savings look after four months? I made no particular effort to identify or shop with programme partners, yet still achieved an average monthly saving into my RA of R36 and a R12-a-month donation to the Starfish Foundation.
One of the Momentum actuaries calculated that if my very modest average monthly rebate into my exceptionally modest R1 750-a-year RA continued for the RA’s remaining nine years to maturity, the fund value would be enhanced by 10 percent. If the full rebate (almost R50 a month) went into the RA, the maturity value would be 13 percent higher.
If I opted out of save thru spend and instead paid the card’s R28 monthly service fee into my policy, bypassing the whole programme, my investment would be 7.5 percent ahead at maturity. (These calculations assume a six-percent annual investment return and no annual RA contribution increase. Scenario one assumes the rebate grows by an inflation rate of six percent a year, and scenario two assumes a six-percent annual increase in the R28 supplement.)
The donation to the Starfish heroes would buy precisely one packet of envelopes and two stamps, but rather than deprive the foundation of this valuable source of stationery to increase my RA’s returns, perhaps I could shop smarter.
I put in a little calculator time of my own and found I could have added another R42 to my rebate every month by using the supermarket, bottle store and pharmacy chains that are save thru spend partners. That figure may be a little optimistic because convenience, price and a retailer’s product mix play a part in determining where I – and everyone else – shops. Nonetheless, a few small changes could raise my total rebate to about R70 a month.
Let’s be clear, though: when you spend your money, do so on the basis of the service offered, the terms of the contract (if there is one) and the price you pay plus any discounts available, not on whether the company is a Momentum partner. The save thru spend partners may not necessarily offer the cheapest prices on consumables, and if you sign a contract with a vehicle tracking company or cellphone service provider, for example, make sure the whole deal works for you.
What hasn’t been examined yet is the downside: any credit or debit card will incur charges somewhere along the line, and running more than one piece of plastic means a duplication of fees.
Friedrich says that for this reason, if you take the Momentum credit card, consider making it your only one and don’t run other cards in parallel.
"We do not encourage extra spending; we want to unlock spending power," he says.
It costs nothing extra to use your save thru spend credit card or cash card to pay for goods and services, but there are other normal costs associated with card spending. These include the monthly service fee of R28 for the Classic credit card, R31 for the Platinum credit card (both with a free garage card), and R27.30 for the cash card. The replacement fee for the cards is R86.50. These fees are somewhat on the high side relative to those charged on a range of credit cards offered by the big four retail banks.
However, save thru spend’s currency conversion fee of two percent on international transactions (such as buying on the internet from amazon.co.uk), the garage card transaction fee of R3 a swipe and the cost of cash withdrawals from your card all compare more than favourably with the fees charged by the big four.
Room for improvement
My verdict? No pain; definitely some gain.
No pain. A teller at a retailer or service provider doesn’t need to know about save thru spend in order for the benefits to register. And this isn’t a "loyalty card" whose requirements are difficult to understand and whose rewards are almost impossible to achieve.
The gain. A 10-percent enhancement on the final value of the RA is impressive – but it is a small RA, after all. If I was contributing to a much more saintly R1 750-a-month RA, the return on maturity would be two percent better than it would have been without the programme (with the same assumptions in place). That is still not to be sneered at.
In addition, there is scope for tax savings. You can deduct, from your taxable income, the rebates paid into your RA (as long as the amounts stay within the deductible allowance). If you are on the top marginal rate of 40 percent, this means that the taxman gives you 40 cents for every rand you save (plus you pay no capital gains on the returns). The additional payment into the RA will be reflected on the tax certificate you receive from Momentum every year.
I racked up some heavy costs on the credit card, but that is not a fault to be laid at Momentum’s door. The exercise showed me that buying petrol with a credit card – any credit card – is an unwarranted luxury: there is the swipe charge and then you immediately incur interest on the amount spent (unless you keep a credit in your account).
By the way, the interest rate you receive if you have a credit in either your cash or credit card is four percent (after the repo rate cut on May 29), which compares very favourably with the rates offered by the big four retail banks.
As mentioned above, my rebates could be improved. Friedrich gave me figures for some (anonymous) programme members. In one case – and it was not even the best example – a client saves an average monthly rebate of R120 into a R332-a-month RA. If that continues until maturity, the client will receive R19 000 more than the R71 000 he or she is projected to receive without the programme. (These figures assume an average annual return of six percent and contribution increases of 10 percent a year.)
Friedrich says people resist changing their behaviour, even when they know theoretically that change will be good for them. So, he says, the intention of the programme is to get clients to save without their noticing it or feeling the pinch.
If you have a qualifying Momentum savings product, it may be worth your while to visit the site to acquaint yourself with the partners, then get out your recent credit card statements and do some sums.
Into the money market
In June, Old Mutual launched a savings concept that is similar to Momentum’s in some respects: its cards allow you to convert a percentage of your eligible spending at almost any retailer or service provider into a saving. In this instance, the rebate goes into an Old Mutual money market unit trust.
Unlike the save thru spend programme, members are issued with two cards, both of which are credit cards. Your primary credit card is an American Express card and it pays back one percent of your spending into your unit trust account. Your back-up, should the American Express card not be accepted at a particular retailer, is a Visa credit card, which repays 0.5 percent.
Old Mutual had 19 retail partners involved at the time of writing in early June. If you use the American Express credit card (but not the Visa card) at one of the partners, you can at least double your savings. For example, Look & Listen will add one percent to your "base investment reward", while Wetherlys and Furniture City will add five percent.
The two credit cards share one account and one credit limit. Supplementary cards can be linked to the account, so your family members can earn rebates into the unit trust account as well.
Old Mutual normally requires a minimum of R25 000 to open a money market unit trust account, but in this case there is no minimum. You can top up your investment whenever you want at no cost with as little as R500 at a time, whereas typically Old Mutual requires you to deposit at least R10 000 when making an ad hoc investment into a money market unit trust account.
Old Mutual was offering a return of about 9.56 percent on its money market funds at the time of writing, although, of course, this interest rate fluctuates. You can withdraw funds at no charge once a year, in December. A withdrawal at any other time of the year will cost R80.
The R3-a-month administration charge for the investment is included in the R35 monthly fee for the cards, which covers both credit cards and any supplementary cards. The cards and credit facilities are granted by Nedbank. To qualify, you have to earn more than R100 000 a year and, of course, meet credit affordability requirements.
It will cost you nothing to replace the cards if they are lost or stolen, and the fee for international transactions is between one and 1.5 percent. A credit in your account will earn interest of one percent.
If you have credit card and/or store card balances of at least R2 000 in total, you can move that debt into your Old Mutual credit card account and pay an interest rate of 13.5 percent for the first 12 months (regardless of whether the repo rate rises or falls).
But try to clear the debt before the end of the 12 months, when the interest rate will rise to the prevailing rate on the cards. After all, Richard Treagus, Old Mutual general manager (product development), says: "The aim of the programme is not to encourage you take on additional debt. We are encouraging customers to use their cards in a responsible way."
If you want to make use of any of these products, check that you will get value for money on the underlying investment, be it an RA or a unit trust. This means checking on, among other things, any product costs and surrender penalties that apply.
This article was first published in Personal Finance magazine, 3rd Quarter 2009.See what’s in our latest issue
  
 
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