Money Skills

HOW STOKVELS CAN BE USED TO CREATE GENERATIONAL WEALTH

INTRODUCTION 

Stokvel is a form of saving that involves members contributing towards a specific financial goal. Stokvels can either be a short term where members give money to another member each month, or long-term, where money is saved and disbursed in equal proportions to members after a period of more than a year. Stokvels are an effective method of saving in South Africa as many people do not earn that much- In some instances, some stokvel contributions start from as little as R20 per month

Benefits of stokvels 

Belonging to a stokvel brings a sense of community as members become like a family and build much-needed trust between them as members of society. It can also make one be accountable and disciplined as opposed to saving alone, where there is no one to hold you accountable. 

Current popular types of stokvels include those for food, beverages and other important costs for parties, weddings, funerals and the festive season and those that are essentially saving clubs where members have joined to fulfil their own personal financial goals such as buying furniture or subsidising buying a car or building a house. 

There is a need for stokvels that will give members rewards that even their great-grandchildren will be able to benefit from and to take over from, such as ones where members will be contributing to buying land to build houses or business units for rental income or even farming or saving towards your children’s education.

The negatives of stokvels

Just like everything that involves investment, being a member of a stokvel comes with many risks, including fraud that can occur within the stokvel or from outside and the whole idea of a stokvel being unsuccessful because members do not agree on certain issues and priorities are misplaced. To protect themselves from these, members should join those stokvels that are well-structured, registered with relevant authorities, and have clear, specific goals and strategies for reaching these goals. 

A code of conduct is also vital to have. The roles of members and leaders should be set out, and existing members can test new members’ seriousness through a thorough vetting process like questionnaires and interviews. Other forms of governance, like KING IV and the Companies Act, can be used. It might also be helpful to seek the services of professionals such as lawyers or accountants to help draw up contracts and help out with their expertise in dealing with legal and money matters

CONCLUSION

In view of the unemployment rate, gaps in the coverage of social assistance and inadequate social assistance benefits, it is recommended that communities are encouraged to participate in stokvels to promote income security. This would complement the other efforts of the state in reducing poverty. 

Prudence Baloyi Thato

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