HomeNewsBreaking down barriers to saving (2)

Breaking down barriers to saving (2)


SAVING money is not easy, especially during tough times that we live in when our income is barely enough to cover basics.

Clive Mphambela

Last week, we began to unpack some of the hurdles that we are facing as individuals, family households, or even as a nation, as we try to reserve some of today’s income for the future .

We briefly busted two myths, the first by showing that low income is not a good enough reason not to save money. Saving should become a habit and a discipline that is not related to one’s level of income.

To develop a culture of saving, we need to put away a portion of our income every month or some other regular interval, no matter how small.

The savings will build up over time. Secondly, we distinguished between saving being a long-term agenda and debt essentially being short term and identified that being in debt once in a while should be temporary and should not stop one from saving for the long haul.

That way your savings should grow over time throughout your working life. When you eventually retire, your savings in the form of assets and accumulated cash savings can work and generate income for you.

We also noted that the lack of access to appropriate financial products that encourage savings, the complexity of existing products and processes, lack of information and education about financial matters and products, poor financial incentives for savers and low confidence in the financial system are all contributing to the low savings rate in the economy.

These factors are not exhaustive. There are other barriers to saving that we need to identify and hopefully come up with mitigate against.

False sense of security in social security programmes
During our working lives, we all get to depend on social security systems such as the National social security schemes and our private pensions. However, these are not enough to provide for our future needs as well as the objectives of wealth accumulation.

The unpleasant reality associated with these schemes is also that when you eventually retire or fall out of work, the payout may not be adequate for you to maintain a decent livehood.

At the very least , besides a compulsory or voluntary pension, one needs to build a savings amount that will help in accumulating both financial and non financial assets overtime. This is one of the virtues and benefits of devising a consistent saving plan.

As much as you are contributing to NSSA and if you are lucky to have a pension fund at work, where both you and your employer contribute something, you must still devote a little bit of your resources to a savings account with your bank.

Psychological inhibitors

Apathy, personal inertia or boredom are classified as psychological inhibitors to saving. Having an “I don’t care” or apathetic attitude to the subject leads one not to embark on a saving programme.

Procrastination or putting off to a later date means one delays in starting off on a savings plan. This is what is called personal inertia.

Downright boredom is also a killer. This arises out of impatience. Most often we will ask ourselves, how do I get to have that house if I can save only $50 per month? Surely the goal seems so far off or far fetched. But, developing the habit of saving may in the beginning be more important than the amounts that one actually saves.

The Chinese have a saying which goes; “a journey of a thousand miles begins with a single step”. This is true, even for starting on a saving odyssey.

Financial exclusion

Financial exclusion is a form of social exclusion that refers to the lack of access, to financial services by a major segment of the population. In modern social science it is a form of discrimination and policy makers the world over, including global institutions such as the World Bank, have set part of their agenda as the need to reduce financial exclusion or conversely to promote financial inclusion.

The subject of financial inclusion will be discussed in some depth in the following articles, but here are a few thing that can be done to eradicate this significant barrier to savings growth.

Promoting financial education

We have already alluded to lack of information and knowledge about financial matters, products and so on as a key element of financial exclusion. Therefore, promoting mechanisms for educating the general populace about financial matters is a crucial step.

People will use financial services if they are well equipped with the basic knowledge of how they work and how they will ultimately benefit. Financial education should be promoted at an early age and should be part of the nation’s education curriculum.Banks and financial institutions should also spread the benefits of savings to all by also promoting education and access to the services.

This goes beyond advertisements and promotions but has become an important social function of the banking industry. The country should adopt a national savings initiative, fully supported by the government. Policies should be tailored to encourage higher and more regular savings.

Government can lead this by relaxing rules for citizens to access the formal financial system. At present, regulatory requirements for one to open a bank account are quite onerous for the majority of people.

This relaxation should also remain in the context of global requirements and standards for Know Your Customer processes within banks, which are meant to preserve the integrity of the local financial system. In addition to identified tax, and non-tax incentives, Government should support ongoing initiatives by banks, mobile network operators and other non-bank financial players to embrace technologies such as biometrics identification to go around some of these challenges.

See also: Breaking Barriers to saving (1)

Clive Mphambela is a banker and financial adviser who writes in his personal capacity.

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