To boost Kenya’s savings culture, financial literacy must begin at homeThursday March 23 2023
Kenya, like most African countries, still suffers from chronic low savings rates, primarily attributed to financial illiteracy.
According to a 2021 report by EFG Hermes, Kenya's savings rate —calculated as the difference between income and consumption, expressed as percent of GDP — was at 13 percent, which is way below Africa's average of 17 percent.
By contrast, neighbouring Uganda and Tanzania have already crossed the 20 percent mark even though their per capita income is significantly lower.
Today, more than ever, financial education is a core life skill as more households are living from pay cheque-to-pay cheque.
Loosely defined as the ability to understand and apply different financial skills effectively, including personal financial management, budgeting and saving, financial literacy makes individuals self-sufficient.
Kenya's poor saving culture is attributed to high spending power, especially by young people who follow international trends closely. The report further cites minimal mentoring and financial illiteracy as contributing to the low savings culture.
Achieving financial well-being is more than how much money you make or whether you know how to invest in the stock market.
It is about being able to make informed money choices that prioritise your needs and acknowledge delayed gratification.
This level of financial planning skills is key to making financial decisions related to spending and saving yet remains one of the most undervalued skills.
Like most African countries, Kenya has alarmingly low financial literacy levels. With a population of approximately 50 million people, only 38 percent of Kenyans are financially literate, according to a 2021 Global Financial Literacy Survey.
Our neighbours Uganda recorded a 34 percent literacy level against 40 percent in Tanzania, and 42 percent in South Africa.
From the study, it is clear that most people are unprepared to deal with rapid changes in the financial landscape.
Moreover, this is at a time when credit products such as mobile loans, credit cards and even log-book loans, many of which carry high-interest rates and complex terms, are becoming more readily available.
Given these risks, we must take individual responsibility to safeguard our financial situations, especially our children's, from predatory financial practices and most importantly, impact financial knowledge from a tender age.
Unfortunately, most parents need to do more to expose their children to money matters; while this stems from how most households raise their children, it's time for a mind shift.
We must involve them in day-to-day money matters, like managing household expenses, to help open their minds to certain financial aspects.
As we mark Global Money Week, we must make deliberate efforts to inculcate the basics of finance in our children before they go out into the world.