Gig workers need financial solutions that address income volatility

By Duma Mxenge, Business Development Manager at Satrix

The global move to a gig economy has accelerated in recent years as workers exit formal employment in favour of flexible freelance work or take on freelance assignments in addition to their main jobs. In fact, online platform Statista expects gig workers to gross over USD455 billion globally in 2023.

With this economy growing so rapidly, asset managers and financial advisers need to think smart when developing and recommending financial solutions to this growing market segment. Most importantly, we must remember that gig workers’ earnings may vary wildly from one month to the next.

Income volatility and inadequate savings to pay for unexpected expenses stand out as the main financial challenges facing South Africa’s gig workers, described by Oxford Languages as “individuals who do temporary or freelance work, often as independent contractors engaged on an informal or on-demand basis”.

Many traditional investment products are designed with those in formal employment in mind. For example, retirement annuity products and pension funds assume that clients can afford a fixed monthly contribution, plus an annual increase. These products can present difficulties for gig workers due to their uncertain earnings.

In additional, research by the United States based Commonwealth (assisted by Green Dot, Gig Wage and Steady) found that most gig workers had no savings for emergency expenses, observing that financial ‘blows’ of USD1,000 to fix a vehicle or make up a rent payment were often insurmountable. As such, the starting point for a gig-worker-appropriate financial solution is a product that allows for irregular cash savings and gives workers access to that money in the event of an emergency.

Although cash savings can be accumulated in a bank account, it makes sense for gig workers to consider money market funds that allow them to earn ‘better than bank’ interest rates while avoiding the price uncertainty that goes hand-in-hand with stock market investments. As the gig worker accumulates sufficient savings and his or her earnings become more stable, the adviser may suggest lump sum or once-off investments in a range of discretionary investment products.

South African gig workers can choose from hundreds of collective investment schemes such as unit trusts and exchange traded funds (ETFs), which allow them to build a savings portfolio with exposure to any asset class, both locally and offshore.

An individual with volatile income should not neglect saving for retirement. After building an adequate emergency fund, equivalent to around six months of average income, the gig worker can begin contributing to a retirement annuity offered by one of the country’s Linked Investment Service Providers (LISPs). Retirement annuity products are also available on the SatrixNOW investment platform. These retirement annuities are balanced funds and they allow flexibility in contributions introducing gig workers to a highly-regulated retirement fund industry.

The gig economy carries significant risks and a high level of uncertainty. This uncertainty makes it difficult for gig workers to choose investment products for housing emergency funds or securing retirement. Satrix believes that gig workers should approach financial advisers to assist in managing uncertain cashflows, and over time build the necessary exposure to savings, retirement funds and discretionary investments.

Asset managers and financial advisers can work together to ensure that gig workers benefit from sound financial advice and the investment returns on offer to appropriately match the needs of the client.

Satrix is the leading provider of index-tracking investment products and exchange traded funds (ETFs) in South Africa, with over R160 billion in assets under management invested in the range of ETFs, index-tracking unit trusts, life pooled and segregated portfolios that are specifically tailored for client-specific mandates or retail funds.

It pioneered index investing in South Africa, launching the flagship Satrix 40 ETF as the first locally listed ETF in November 2000. The business services the institutional, intermediary, and individual investor markets. Satrix has proven expertise in risk management, portfolio analysis and index construction.

A core part of the Satrix purpose is to drive the democratisation of investments for all South Africans, where SatrixNOW, the no-minimum amount online investing platform, is a key enabler to provide access for South Africans to “Own the Market”.

For more info on ETFs, unit trusts and retirement annuities, visit the Satrix website.

Disclosure
Satrix Investments (Pty) Ltd is an approved FSP in term of the Financial Advisory and Intermediary Services Act (FAIS). The information does not constitute advice as contemplated in FAIS. Use or rely on this information at your own risk. Consult your Financial Adviser before making an investment decision.

While every effort has been made to ensure the reasonableness and accuracy of the information contained in this document (“the information”), the FSP’s, its shareholders, subsidiaries, clients, agents, officers and employees do not make any representations or warranties regarding the accuracy or suitability of the information and shall not be held responsible and disclaims all liability for any loss, liability and damage whatsoever suffered as a result of or which may be attributable, directly or indirectly, to any use of or reliance upon the information.