Promoting a better saving culture for the youth

With the rise of the pandemic, I noticed so many people have moved to Tanzania either long term or short term.

Majority of these people are young adults of 30 years and below and they come from different parts of the world.

These people would still be able to lead a decent life even though they are far from home and although some of them do work, most of them have chosen to be on a holiday.

This means leading a decent life in a foreign country without working. Out of curiosity I asked these new friends of mine how they could afford all this spending while doing minimal jobs or none at all.

The answer was of course ‘savings’.

One of the many cries with most Tanzanians, especially the youth, is that due to the lack of savings brought on mostly with the economic crisis and lately the pandemic that led to many salaries being chopped into half, it becomes increasingly challenging for one to have savings.

I personally observed that I am often left with a small and unrealistic amount to run my life for the remainder of the month after I split my income into all the budgeted items. Usually, two weeks after pay day, I often find myself living on a very tight budget and this sometimes results in duress and stress.

I then started this conversation with several people and I realized most people, especially the youth, struggled just as much as I did.

My neighbour Francis Kessy; Alicia Sutton who is a friend from the UK, my childhood best friend Emmanuel Mushi who is now an experienced finance professional and an acquaintance, Janet Barber who was a Senior Investment Adviser at Macquarie Bank Ltd in Australia for 20 years all had helpful takes for me to work with.

I was curious as to how Francis managed to save and still be able to live his life to the fullest. “God influenced my saving behaviour. From His word I knew that I had to save some amount of money for the future. But the question was how I was going to do it. My savings were haphazardly done so I had to plan my expenditure and investment. Every income I received, 20 percent was set aside of which 10 percent was for my tithe and 10 percent for savings. The remaining 80 percent left was then split to fit my budget” he explained.

“This was how saving became a part of my life and eventually, the saving charge compounded easily because I never bothered with it, the 80 percent left was enough for me.”

Alicia Sutton is a Tanzanian who moved to the UK at the age of five. Now at 22, she has returned for a long holiday and works twice a week as a writer. Like me, Alicia grew up with a savings piggy bank. Mine was known as kibubu; a wooden box that I would put any money given to me because in our household, children strictly had no business with money.

Alicia’s money was raised from pet sitting, bake and sale, car washing, baby sitting, braiding and working at McDonalds after high school.

My money was raised only if and when I am given money and like I said earlier children had no business to do with money. We had one chore which was to score great grades.

Alicia had a trust fund set up for her as a child of which she was well informed about and she transferred funds to her new savings account when she turned 18. I, like a few other Tanzanian youth, had a savings account opened for me. And although I benefit from it from time to time, for some reasons, I am not in total control of it like you would say Alicia is with hers.

Alicia’s piggy bank savings were transferred into her trust fund account and let me just say my first piggy bank got broken into at Christmas. We do not know who stole the second one and as I headed out to year 5 as a boarder I was again reminded that I had no business inquiring about my kibubu unless I was about to pay half my fees. Majority of the youth in Tanzania would tell you they have had very similar experiences.

I do believe there is no better way to teach a child a habit than in their younger years. The reason why the majority of Tanzanians have little to no saving culture is because we are not taught and trained at an early age on the importance of saving.

I was curious to find out facts on the saving culture in Tanzania and my data scientist friend shared with me some findings by FinScope Tanzania 2017. They found out that only about 2 in 10 Tanzanians save for productive investments or asset building; this indicates that only few Tanzanians have established a long-term savings culture.

These statistics resonate with the Bank of Tanzania reports that the banking system has a very short-term nature of deposits collected, with an average maturity of only 136 days; hence – majority of the savers prefer to do so for the short term.

All this spending and saving conversation really had me torn; I could not place myself on whether I was a frugal person or a spender.

Finance expert, Emannuel Mushi, he had this to say on the matter; “It doesn’t matter if you are a big spender or a frugal person, savings are an important part of living a comfortable life irrespective of the income you earn. Saving is a gap between your income and your expenses, the bigger the gap, the higher the savings. The higher the savings the bigger the buffer a person has against unexpected emergencies.”

Emmanuel continues to say that lifestyle plays an important role in a person’s savings habit. The friends you hang out with, the places you visit, the habits one develops greatly affects one’s expenses, which in turn widens or narrows the saving ability of the person.

Contrary to popular beliefs, a high-income earning person does not necessarily have a high saving ability. Also, a low-income earning person does not necessarily have a low saving ability. It all depends on one’s expenses.

Emmanuel then answers my most important question on whether it is possible to create a saving culture and still enjoy life.

“It all comes down to how much money you make and how much you normally spend to sustain and enjoy your current lifestyle. For people who enjoy a frugal lifestyle, it can easily be done. For those who enjoy extravagant lifestyles especially those whose income cannot support their luxury needs, creating a saving culture has to involve sacrifices in order to ensure your income is higher than your expenses. It’s either that or they need to increase their income, which very often is hard to do” he explains.

He also shares a tip on the most popular way for employed people to save and he says it is by opening a savings account with a bank. The account is normally a means for one to be paid their monthly salary, from which a portion is spent on living expenses and the remaining amount is left in the account as savings.

For slightly sophisticated people, they open a second account either with the same bank or a different bank and create a standing order to transfer a fixed part of his/her salary to a secondary account, while the primary account is used to cover the cost of living for the individual.

Tech came through

Emmanuel adds that accessing banking facilities is limited especially in rural areas where banking penetration is low. Hence, the predominant means for people living in the rural areas to save involves mobile money accounts and Savings and Credit Cooperative Societies (SACCOS).

Mobile money accounts are the most convenient due to a high rate of penetration of telecommunication services. Anyone with a telecommunication line can easily open a mobile money account and deposit their savings for safekeeping. Telecommunication companies also pay interest on money saved using such means.

SACCOS is another way of saving, which is commonly adopted not only in rural areas but also in urban societies. It not only caters to the savings needs of a person, but one has easy access to loans of higher amounts compared to the amount saved in the SACCOS.

Long-term investments

He also doted on instruments such as treasury bills, shares and bonds to be some of the ways the experts in the financial world use in their saving & investment strategies. Most of these tools cater to long term savers and are not suitable for people with short term savings needs.

They require an understanding of the operations of the financial markets and should not be used by novice savers without an expert’s guidance. The plus side is that these tools normally pay a higher interest rate compared to the normal savings accounts which very often pay interest rates lower than the inflation rate. This means that at the end of the day, the money saved has lost some value.

Other societies…

Janet Barber who has been a senior investment adviser for 20 years also says she considers herself to be both a spendthrift and frugal. “‘I think I am being frugal when I go to the markets and seek out a bargain to save a few shillings here and there. But I am also wasteful when l indulge in a treat. I sometimes justify my elaborate spending, by choosing to spend less on essential items.”

Janet continues to say, “I live a lifestyle I can easily afford. I leave a little salt on the plate. Saving money means to preserve it and not waste it; to put something aside for future use.

The ability to save money means that I have more money when I really need it. I can feel relaxed about money and know that I always have something saved up for emergencies.”

Janet comes from Australia, where saving money is something they learn from a very young age. She recalls when she was in primary school during the 1960’s being given her first bank account.

She was just about ten years old. All the students in her class were given a savings account by the local bank.

They were taught how to go to the bank and deposit their little savings each week.

“We were just little kids but we were encouraged to try to earn a little money in our neighbourhoods doing small jobs for friends and receiving a tiny amount of money for that work. Things like helping a neighbour in the garden for instance and earning a few shillings that we could deposit in our little bank account and watch it grow” Janet says.

The emphasis on this lesson was not to see how much they could save, or who could save the most; rather, it was about the long-term picture.

Over the course of the year, they could see how much money they had saved and even though it was not a lot of money, for a child it was exciting for them to suddenly have some money of their own.

Janet adds that, “In hindsight I realise the benefits of that lesson. Although it seemed like fun at the time, the reality is that this became a normal part of life and a part of growing up”.

With her observation now living in Tanzania Janet says, “In Tanzania of course this type of lesson is almost impossible to imagine for most children. The reality is that there is never a little bit of money left over to put aside for a rainy day. The system of family and extended family units supporting each other means that if someone needs your help and you have a little bit extra, you help them. It’s a system which works quite well of course and what goes around does come around”.

Janet adds, “I imagine for most Tanzanian families being frugal is not a choice. It’s a way of life and there is only just enough to feed and clothe everyone. Only just enough to pay for the necessities of life and nothing left over to save.”

Janet also points out that, “There is pressure on everyone to try to save money. But that pressure should not stop anyone from putting a little bit aside. It doesn’t need to be a lot of money to begin with. Just like a little 10 year old learning to save money, we all can learn to put that tiny little bit of money aside”.

She adds that to save it and watch it grow over a long period of time, you somehow have to learn to overcome the feelings of selfishness if you don’t help others. The truth is that if you are able to save some money to put aside enough to fund your future projects, whatever that may be, you will eventually prosper and in the future be able to be more generous and more helpful to the people who need your help.

Janet shares a hint on how one can save well and she says, “You need to have a plan, a strategy, with a time frame.

Then you need discipline to stick to the original plan and not get side tracked. A very small amount of money over a long period of time put aside on a regular basis and not touched for any other reason other than the original project that it was intended for will change your life.”

Janet adds, “I’m not Tanzanian or African. I come from a different culture and a different part of the world. But still the culture of discussing personal finances is the same.

Those who tell you they have a lot of money probably do not actually have it. And those that don’t say much about their own finances likely think they have a bit more than you.”

The financial situation is usually a very private topic. Most people never talk about their own personal finances in honest detail to anyone. We feel that telling someone about our financial situation is like letting them in on a deep personal secret. We feel vulnerable.

There is a certain kind of shame in admitting that you have made a financial mistake.

You might hint at being in a financially poor or bad situation when you are asking someone to help you. But even then, it’s likely that you don’t tell that person your exact situation. Maybe you don’t need to.

However, if this pandemic has taught us anything, it’s time we change our spending habits and develop a healthier saving culture.