Inculcating a culture of savings in Kenya


Inculcating a culture of savings in Kenya

It is also incumbent on Kenyans themselves – and not just those who are already financially savvy – to save responsibly. PICTURES | SHUTTER

In a world where people aren’t often reminded to save their money, it’s easy to overlook the value of saving and investing. With so many other instant gratification options available, why would anyone be convinced to save for an unknown future?

The truth is that savings are a powerful tool for the economic transformation of an individual and a country, especially in countries like ours.

For years, Kenya has struggled with low savings rates and high levels of dependence on foreign aid, leading to significant social and economic challenges.

As observed in various studies, Kenya’s savings rate is well below the African average of 17%. Countries like Uganda and Tanzania have already crossed the 20% mark, indicating a more advanced savings culture.

It can be argued that Kenya’s low savings culture stems from several factors, including poverty, inadequate financial education, and a limited range of available financial incentives. This has made it difficult for Kenyans to build up their savings over time.

The current national conversation on savings and investing inspired by President William Ruto’s campaign is welcome. The President stressed the need for Kenyans to embrace a culture of savings as part of efforts to improve the country’s economic situation.

He also weighed in on pension contributions for Kenyans in formal employment, noting that they are insufficient to help older pensioners. I couldn’t agree more.

Currently, employees contribute a minimum of 200 shillings per month to the National Social Security Fund, which is usually matched by an equal contribution from their employers, resulting in a maximum of 2,400 shillings per year. This is far from enough for most Kenyans who need more to live comfortably in retirement. Furthermore, the pension scheme only serves those in formal employment, leaving out a large majority of Kenyans who work in the informal sectors.

Nevertheless, all hope is not lost. As the government and other industry players combine efforts to boost national savings, Kenyans looking to start their savings journey have a variety of savings products to choose from.

Financial institutions such as banks and saccos offer many savings products that meet different savings needs and goals. Market savings products have different interest rates and interest is payable monthly, quarterly, semi-annually or once annually. Some savings accounts require as little as Sh50 deposits to start earning interest with variable withdrawal limits

It simply means that the portfolio of savings products in Kenya is diverse enough to satisfy everyone, both in the formal and informal sector.

So what should be done to encourage people to save more? The government should develop general policies that cover other savings instruments in addition to social security that will provide financial security and promote long-term savings. The government’s plan to match pension savings of one shilling for every two shillings set aside is expected to be expanded to also cover other savings incentives. This will help to improve Kenya’s economic situation as it would mean that more money would be available for investment, which would lead to the creation of more jobs.

At Postbank, for example, we have worked to provide low-cost savings accounts to average Kenyans with a view to advancing financial inclusion in the country. We also have advanced financial literacy activities with all customer segments we work with. As the largest and oldest savings bank with a mandate to instill a culture of savings, the bank has a diverse portfolio of personal and group savings products that offer tax-free interest income. The bank stands ready to support Kenya’s savings transformation journey.

As the country’s top leaders seek to change mindsets and instill a culture of savings, there is a need for more public awareness and education – about what they should save, how they can do it effectively and the various incentives that flow from it.

It is also incumbent on Kenyans themselves – and not just those who are already financially literate – to save responsibly so that they can contribute to their own financial stability in an economy that is growing at an unprecedented rate.