Building a savings culture

September 4, 2008

, NAIROBI, August 27- You’ve probably heard the government announce that it intends to raise the national savings levels to about 30 percent in the next 25 years.

A statement which begs the question: what is the savings rate for Kenyans? According to estimates, it is a meagre 14 percent compared to 34 percent in Nigeria.

A section of local financial consultants paint an even gloomier picture; that Kenyans do not have a savings culture.

What with the young upwardly mobile Kenyans taking up credit cards and getting caught up in debt, spending money that they do not have and taking up loans to go on vacation!

Credit cards have become increasingly accessible, with banks now giving them to anyone earning more than Sh10, 000.

Financial consultants say women are better at saving than men.

Alex Kadzitu, an independent financial consultant, says Kenyan women, (particularly mothers) are more financially disciplined than their male counterparts.

This probably stems from their need to look out for their children and secure their future.

Sadly though, adds Kadzitu, majority of these women keep their money in banks where they have either fixed or current accounts with monthly deposits of between Sh10, 000 and Sh20, 000.

Granted, putting your money in a bank is commendable, but is it a good option?

Kadzitu says compared to other investment tools, banks do not offer good returns.

“If you are saving and the returns don’t beat inflation, then you are actually losing in terms of the value of cash that you are holding,” he explains.

Consider this: If say you put Sh1 million in a bank account at an inflation rate of 10 percent then it means that at the end of the year you lose 10 percent of the value of the cash.

In value terms this means you loss about Sh100, 000.

He says there are more efficient vehicles such as mutual funds, equities or offshore investment that even the low-risk takers can look at.

He cites the offshore investments through which savvy investors can diversify their portfolio and adds that the entry levels for such securities are manageable and affordable for the average middle-class Kenyan.

Kadzitu says such investments present immense opportunities for investors to maximise their returns because the markets record single digit inflation rates have a wide range of products to invest in and investor-protection is much higher.

There are many firms that have been offering such products for close to 10 years but the uptake is still too low, a situation that is attributed to scepticism and a lack of knowledge on the benefits of such instruments.

Although a number of Kenyan investors are better-educated on investment matters now than they were a few years ago, there are still many people who have a rudimentary understanding of these securities.

“There are still people who associate offshore investments with money laundering and corruption,” the consultant explains.

Mutual funds however have been a preserve of a few. But is cost a factor for the low uptake now?

Kadzitu says an emphatic no. Currently, there are providers who are offering funds that range from a minimum of Sh5000 to Sh1 million.

In order to know which vehicles to invest in, he says, investors should seek guidance from financial adviser to get the pros and cons of a particular product and give them unbiased opinions.

This, he says, would help people to avoid situations where many people have burnt their fingers by taking up loans to participate in Initial Public Offers.

Rule of thumb he says: “Do not take up loans to invest in securities especially equities unless you have the capacity to repay the loans with ease.”

As his advice to Kenyans, Kadzitu quotes William Shakespeare who said: “Take care of the pennies and the pounds will take care of themselves.”

Translated into Kenyan lingo it basically means that “if you are not making cents, you will never make shillings”.

He says a person who’s looking to make some money should always be on the look out for opportunities to invest, don’t be narrow-minded.

Kadzitu’s parting shot: “Formulate smart objectives and then follow the financial planning cycle to the letter.”


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