Embrace innovative ways to make saving addictive

People should regularly analyse their financial habits, create a budget that balances their priorities. FILE PHOTO | NMG 

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By REGINALD KADZUTU
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Summary

• People should regularly analyse their financial habits, create a budget that balances their priorities and discover how to make the most out of their monies.

The concept of personal finance has eluded many including a good number of financial advisers. Even financial illiterates are in the know that financial planning helps individuals and families reach goals that require money to achieve.

Domestic savings plays a vital role in economic growth and development of any country stemming first from an individual outward. Higher savings lead to capital increase which in turn translates to investments for economic growth.

Japan continues to serve as an example to other nations due to its high saving rate having gone through developmental phases after World War II. Just like Kenya today, Japan was once in a reconstruction period in which savings were in short supply. However, the country applied measures that allowed the balancing of saving and investment at a very high level so as to achieve rapid growth. Today it is in a period where saving has exceeded investment in the private economy and contributes 30 percent to gross domestic product (GDP).

Savings can, however, be affected by many dynamics including economic growth which in many developing nations has remained low due to rising debt, high inflation rate, debt servicing, backwardness of human capital, less exports, political unrest, and bad law and order conditions. In these tough economic times, it is widely acknowledged that saving has been the last focus area for 90 percent of Kenyans who are faced with both low and reduced income thanks to low purchasing power due to many of the aforementioned factors.

Nonetheless, a willingness to save has always been existent among most Kenyans, but unavoidable responsibilities have either choked every intention to do so or has been used as an excuse for failing to save.

It is for lack of savings that Kenyans have gotten into a borrowing binge. According to Financial Sector Deepening report, 27 percent of adult Kenyans are digital borrowers and 17 percent are 90-day active. About 14 percent have multiple loans and 62 percent are below the age of 35. Most of the borrowed funds go to recurrent expenditures instead of income generating investments.

This has a huge impact of the saving capabilities of the country and is already denying the economy the much needed savings to fund the productive sector. Kenya’s savings is less than 10 percent of gross domestic product and the increasing appetite for individual debt will lead to future funds being directed to loan repayments and the country will end up with an ageing poor population.

Whereas the levels of income, educational status and occupation have a positive influence on the appreciation of a saving culture, the number of dependants heavily exerts a negative influence on the discipline. However, those with less or no dependants have not taken advantage of their status to save. In spite of this, there has to be a general propensity to save and invest.

It must be remembered that coupled with patience, saving is the easiest means with which to achieve investment goals free of stress. With knowledge on the quantum of saving and investment, research has shown that saving, if approached with innovativeness becomes in itself an addiction.

It is because of saving and a demonstrated ability to do so that people qualify to borrow funds and make substantial investments.

Individuals ought to make it their habit to maximise their utility or personal well-being by balancing a lifetime stream of earnings with a lifetime pattern of consumption by spending 50 percent of income on necessities, 30 percent on wants and 20 percent on savings towards growth. This has to be the ultimate lifetime money plan.

When people don’t know better, they don’t do better. To make life easier, people should consider a guiding tool that helps them to increase financial awareness and saving in the household with the aim of providing knowledge and motivation for sustainable saving through feedback.

For instance, Amana capital has introduced a nationwide digital campaign for individuals using the widely renowned 7 steps to wealth which entails lessons on managing your money and savings and in a fun way.

In addition, there are readily available instruments in the market that Kenyans can utilise to see them through their saving practice without strain. However, due to varying financial needs, it is advisable for individuals to seek professional help from financial experts for identification of most suitable instruments.

Granted, people should regularly analyse their financial habits, create a budget that balances their priorities and discover how to make the most out of their monies. This ensures that the right amount of money is available in the right hands and at the right time in future to achieve specific financial goals.