How To Boost Your Monthly Savings

The latest EFG Hermes report shows that Kenyans save the least across East Africa, with a paltry 12% saving rate.

This falls well below the continent's average of 17%, with Tanzania already past the 20% mark. 

To compound the worrying issue, with at least 2 million Kenyans having lost their jobs in 2020, most burned through their life savings just to stay afloat.

The poor saving culture among Kenyans was attributed greatly to lack of financial literacy that has led to poor financial decisions.

According to the Kenya National Bureau of Statistics, 80% of Kenyans lack a clear savings plan.

“There is a huge disconnect between parents and their children. Very minimal mentoring and financial literacy. Most young people tend to copy expensive lifestyles from the West, hence the high spending power and low savings,’ the report reads in part.

Research also suggests that there are significant parent-child similarities in savings behavior. However, Kenya’s problem appears to stem from the apparent fact that most parents tend to shy away from discussing finance with their children.

The oft-vogue ‘You Only Live Once’ (YOLO) attitude, if unchecked, could have serious ramifications for Kenya’s youth down the line.

It is with this in mind that a rallying cry for change is slowly being pushed by experts in the field of finance. 

One can easily access the most flexible savings accounts in Kenya, with the best offering an interest rate of 7% per year with zero account fees.

Industry data compiled by Money254, placed the lowest interest rate on savings accounts among Kenya’s financial institutions at 0.5% - albeit in a tiered system that could bring the annual rate to 4.5%.

Picking The Right Savings Account

It is important to note that savings accounts grow with compound interest which means you get to earn interest both on the amount you’ve saved as well as any interest accrued. This depends on how the service provider determines the interest formula. \

Some will have your monthly/quarterly interest added to your principal and eligible for interest in the next month/quarter, while others will have a plain annual interest rate on your principal (i.e. the money you deposited). 

When looking to open a savings account, having one that has this set up in place can greatly boost one’s earnings if savings are deposited diligently.

The other option is a savings account that grows on simple interest – money earned on the original amount of your deposit. It is important to note that compound interest offers significantly higher savings growth.

You should also consider the limitations of when you can access your money; some accounts allow for monthly withdrawals, others, quarterly and others only yearly - this is without losing your interest. 

You can compare all these options here>> Kenya’s flexible savings accounts.  

Discipline

Savings and discipline are inseparable. This explains why individuals looking to grow their savings almost always opt to have funds directly transferred to their savings account thereby eliminating any temptation.

With the emergence of personal banking in Kenya, the level of automation that can be implemented on one’s savings accounts makes the process simpler and easier.

A recent study showed a direct correlation between happiness and savings, with countries with the highest saving rates such as Norway and Denmark also ranking very high on the Happiness Index as well.

Experts advise anyone seeking to have a consistent growth in personal savings to always ‘pay themselves first’ by redirecting the portion to be saved to the relevant account even before paying for expenses such as rent and utilities.

Saving needs to be made a top priority in order for it to have any significant impact.

The earlier such a culture is adopted, the better. Financial educators are slowly emerging in the Kenyan market as the need to raise a financially sound generation has been echoed by industry leaders.

There are also various products allowing for parents to save up for their children thereby securing their future.

Putting off saving money is quite easy. From ‘waiting for a windfall’ to ‘waiting for an improved salary’ we never lack for reasons not to.

However, the simple fact is even someone making up for years of zero savings can never quite catch up to individuals who started saving consistently from an early age.

An improved salary package should not necessarily translate into increased expenses.

Take Calculated Risks

There’s a popular phrase in Kenya ‘vunja thao and kwisha’ (once you get Ksh1,000 in change, it’s gone!). This is meant to symbolise just how much inflation has devalued the Kenyan currency.

In the early 90s, a trip to the supermarket with a 1,000 shilling note would need several shopping baskets as it could easily cover monthly purchases.

Flashforward to 2021, and the same 1,000 shilling note cannot cover weekly expenses leave alone a monthly budget.

Inflation is the single biggest threat to savings as the value of the money has been on a steady downward trajectory. 

Savings need not only grow with a rise in income but a rise in inflation as well.

This is where calculated risks in the form of sound investments come in. When it comes to investing, there are markets that some term as ‘sure-bets’ such as treasury bills and bonds.

Treasury bonds pay periodic interest payments and opting to invest in such is termed as a low-risk investment as the government literally guarantees to payback.

The Central Bank of Kenya (CBK) auctions Treasury bonds on a monthly basis, with a variety of bonds on offer throughout the year.

Individuals can invest in Treasury bonds as a nominee of a commercial bank or an investment bank in Kenya. 

If you hold a bank account with a local commercial bank, you can also invest directly through the Central Bank and avoid additional fees.

All in all, the end goal is to make sure that one’s savings match the current inflation as well as ensuring a steady and predictable growth via calculated risks.