BUILDING a national savings culture is a collective responsibility, but for Zimbabweans to start saving effectively, and for the country to adopt a savings culture, there is need to identify the barriers to saving.
By Clive Mphambela
Once identified, these issues that militate against the development of savings culture must be removed or mitigated against.
It is now an agreed state of affairs that Zimbabweans have lost their once strong culture of saving. Yes indeed, we were a thrifty lot!!!
We planned and saved for the future. Our fathers and mothers were but humble teachers, nurses and mine workers, but they had the financial discipline to put away a small portion of their earnings every month.
Whether it was in the form of putting a small deposit entry into the famous green POSB savings pass book, or into the CABS or Founders or Beverley Paid Up Permanent Shares (PUPS) passbook, the discipline was there – they saved something, month in month out.
They also used to pay a small premium into an endowment or life policy with an insurance company every month. What has since changed? How and where has this culture gone to?.
For us to begin to answer some of these questions, lets us explore some of the barriers that need to be broken down that are now affecting peoples’ ability to save money.
- Chamisa under fire over US$120K donation
- Mavhunga puts DeMbare into Chibuku quarterfinals
- Pension funds bet on Cabora Bassa oilfields
- Councils defy govt fire tender directive
Keep Reading
However, before we do that, let us break down one or two myths about saving, that perhaps are the largest barriers to saving that we face in our everyday lives.
Low income is not a good enough reason not to save
Most people think that only the rich can save money. They often ask the question: “How can I save when I can’t even meet basic needs?”
Fair question , and indeed low income people generally have to consume a high portion of current income. But you do not have to be rich to save, in fact some will say the rich are rich because they save.
“I can’t save money when I am in debt.”
Another common misconception. Debt and credit are all part of an individual’s financial ecosystem. You may occasionally take on debt to cover short term needs, which of course you can and should pay off with current income, but yours should still maintain your savings for the long haul.
Saving should be part of your long term financial plan whilst debts, except perhaps for your house loan or mortgage, which you pay back over a longer period, should be for the short term.
If you do your budget well, repayments for your long and short term debts and savings should both come out of current income.
You can in fact be in debt and still save money as long as you take a long term view to your savings. If you want to save a certain lumpsum over the next ten years, by investing say $200 month in a savings account i.e $2400 per year, stick to this target even if occasionally you borrow here and there for short periods of time. Stick to the long term goals.
This being said. It does not mean it is easy to adopt a saving culture without effort. A lot needs to be done by individuals, businesses, government and financial institutions.
Most contemporary studies show that there is low rate of saving amongst low income groups but this is explained not by low income but by other factors or barriers to saving.
One Dr Rosalind Altmann, who studied the problems of low savings in the UK savings system in 2002 came up with a set of factors that inhibit saving. Whilst there were generally low savings amongst low income groups income was the least contributing factor
Lack of access to financial products that enable one to save is a significant barrier to saving. Saving is the act of deferring consumption to a future date. To save money effectively, you therefore need to put it away in an appropriate savings product. This can be an investment or savings account with a bank. You may also need to consider unit trusts and other investment vehicles that grow over time. Complexity of products sometimes scares ordinary citizens from trying out investment products. Service providers such as banks should keep products simple and easy to understand. We are all intimidated by things we do not fully understand. This leads to other important barrier to saving. Lack of information or education
Banks must provide information about their product by creating visibility through marketing and other efforts but is this enough. Banks should also invest in bridging the financial literacy gap in our society but providing financial literature particularly to youngsters Lack of sufficient incentives
Saving does not pay? Or does it? This is an important question that most of us want answered upfront before we start saving. Fortunately saving does pay. In fact economists argue repeatedly and agree that the risks and difficulties of saving are much higher that the risks and difficulties of not saving. What does this mean? It means if you take two individuals who earn exactly the same but one saves say 8% of his income every month and the other does not if you project their situation five years hence, the one who has built savings normally will have built more wealth and created more opportunities to earn higher income than the guy who was consuming everything. Clive Mphambela is a banker and financial advisor.
