Nurturing a culture of saving

A widely acknowledged effect of Zimbabwe’s “lost decade” is its corrosive effect on the proud culture of saving.

Over the years, the savings culture was progressively pummelled into submission by inflation and finally consigned to an early grave by dollarisation in February 2009.

Sadly, this ushered in a hand-to-mouth mode of existence for most people.

Yet savings are an important source of both personal security and financing for economic development.

In excess of $8 billion is required to fund Zimbabwe’s economic recovery, and if that is viewed in the context of a constrained fiscal space and limited external budgetary support, savings mobilisation becomes not only desirable but necessary.

Against this background, it was interesting that a quick word search revealed that the entire Mid–Term Fiscal Policy Review mentions the word “savings” only once. This is in the context of the conversion of pension and insurance values in 2009, which Finance Minister Tendai Biti says undermined confidence in the insurance business and impacted negatively on “sustaining higher savings mobilisation.”

The monetary policy review does marginally better and mentions “savings” six times, only two of which are in any substantive way.

Firstly as a sub-plot of concern about the widening disparity between interest rates and lending rates which culminates in calls for the financial sector to adopt interest rate policies and fee structures that encourage use of formal banking channels and foster a savings culture.

Secondly, in reference to external debt, for which Gideon Gono warns that “effective debt management policies are required to curtail accumulating debt to unsustainable levels, while simultaneously encouraging mobilisation of domestic savings.”

Neither policy document dares to engage the issue of savings in its own right and on its own merits as a policy objective.

Perhaps this apparent lack of policy ambition, if I may call it that, can be explained by the fact that currently there is usually more month left at the end of the money for most of the working class.

The levels of disposable income are still quite low to sustain savings in any meaningful way, it may be argued.

However, the many benefits of a savings pool make nurturing a culture of saving something policy makers should be intensely seized with.

The question on their lips should be how to raise the savings culture from the graveyard of good intentions.

In saying this, I am reminded of what Abraham Lincoln said many years ago but which I recently saw on the notice board at my daughter’s school, “The best way to predict your future is to create it.”

Development, as I said last week, is never inevitable or random; it always follows clearly discernible paths that require strategy, focus and coordination.

If we want a culture of saving, we have to do something about it NOW, period! And leaving it to the self interest of individual market players is not the way.

In recent weeks, we have heard that improvement in credit terms by banks and retailers is in recognition of improved consumer confidence and a general upturn in liquidity.

There is no better time to initiate efforts to tap this liquidity through appropriate short-term savings products.

Outside their national developmental characteristics, savings have many other benefits such as providing individuals with decent retirement benefits, a basic right which many Zimbabweans no longer, or probably never will, enjoy access to. In South Africa for instance, only 10% of pensioners have access to retirement savings.

A study of the comparative statistics for Zimbabwean pensioners should yield interesting results.

Another benefit of savings is protection against unforeseen events. Insurance against short-term risks such as car accidents and loss of property or against longer-term risks such as death or disability is an important form of saving.

Medical aid is another form of saving which removes the need to maintain significant cash piles to meet unpredictable health care needs.

“No matter how well we manage our finances, events occur that we don’t have control over. Without savings, such rainy days can wash away our money and drown us in debt,” said South Africa’s Finance Minister Pravin Gordhan at the 10th Anniversary of the South African Savings Institute (SASI) and Launch of Savings Month 2011. One of SASI’s initiatives involves teaching children the value of setting money aside each month for various needs and wants.

One way of encouraging savings is to strengthen the country’s deposit protection framework as recently happened when the Deposit Protection Corporation Bill was passed in both the lower and upper houses of Parliament. It is a logical and laudable effort in as far as it seeks to protect mainly the vulnerable small savers.

However on its own, it can never be enough as a policy response without initiatives that appeal to individuals’ sense of both responsibility and duty towards contributing to a sustainable pool of domestic savings.

The Medium Term Plan targets national savings to grow to 25% of GDP by 2015.
In order to enhance the nations’ savings credentials, the bedrock, me thinks, should be a solid policy and infrastructural framework that promotes a culture of saving for our needs not wants, and discourages the current consumerist ethos where a large number of people essentially borrow just to consume and usually end up languishing in a vicious debt trap.

The focus on consumer credit to fund growth has often been blamed for the banking sector’s not so successful deposit mobilisation efforts, proof of which is the upwards of $2 billion said to be trapped in the nooks and crannies of the informal markets.

If they are to play their part in nurturing a culture of saving, banks should consider focusing on consumer savings and design savings products that also meet the needs of small savers.

Weigh in with your insights on how to nurture a culture of savings to omen.muza@gmail.com.

Omen N Muza is a banker and managing director of TFC Capital (Zimbabwe) (Pvt) Ltd writing in his personal capacity

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