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Let Us Bring Back the Culture of Saving

Fri, 13/11/2015 - 10:02am -- Clive

October 31st of each year is celebrated as World Savings Day. The day was established on October 31, 1924, during the 1st International Savings Bank Congress (World Society of Savings Banks) in Milano, Italy at the instance of an Italian Professor Filippo Ravizza, who first declared the day the "International Saving Day" on the last day of the Thrift Congress. According to the congresss resolutions, the day was to be devoted to the promotion of savings all over the World. In their efforts to promote thrift, the savings banks also worked with the support of the schools, the clergy, as well as cultural, sports, professional, and women's associations.
Why the need to promote a savings culture?
It is now an agreed state of affairs that Zimbabweans have lost their once strong culture of saving. Yes indeed, we were once 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 this was done in the form of putting a small deposit entry into the famous green POSB savings pass book, or into the Paid Up Permanent Shares (PUPS) passbook with a building society, the discipline was there. They saved something, month in month out. They also used to pay a small premium into an endowment policy or life policy with an insurance company every month. What has since changed? How and where has this culture gone to? And more importantly why?
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.
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.
Myth 1: 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?”.
This is a fair question , and indeed low income people generally have to consume a high portion of their current incomes. But you don’t have to be rich to save, in fact some will say the rich are rich because at one point they saved a part of their income.
Myth 2: You can’t save money when you are 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 you 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 needs.
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 $100 month in a savings account which amounts to $1200 per year, then 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 saving 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 another important barrier to saving.
Lack of information and financial education.
Banks must provide information about their products by creating visibility through marketing and other efforts but is this enough? Banks are also investing significantly in bridging the financial literacy gap in our society by providing financial literacy programmes particularly to youngsters, women’s groups and SMEs.
Are there sufficient incentives to encourage saving?
Saving doesn’t 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 save a penny and 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. Earning a good real return on your savings can be a good incentive to put money away
There is need to continue to rebuild public confidence
Lack of confidence in the financial system is always a key impediment to saving in the economy. In Zimbabwe the confidence of savers was severely dented by the demise of the Zimbabwe dollar in the broader context whilst at the micro level, a number of bank failures have occurred in our system that have created a negative perception of banks. However, responsible authorities have made sure that confidence in the banking system is restored. The Government recently concluded the demonetisation of the Zimbabwe dollar balances and whilst this should not be viewed as “compensation for loss”, it was a necessary step to close the chapter and give greater confidence in the multicurrency system. The Deposits Protection Corporation was also introduced in an effort to ameliorate losses by the depositors in the financial system in the event of a bank failure. Governance structures and systems in the banking sector continue to be improved whilst the regulatory capital positions of banks have been increased all in an ongoing effort to restore confidence in the banking system.
Clive Mphambela is a Banker. He writes in his capacity as the Advocacy Officer for the Bankers Association of Zimbabwe. BAZ expressly invites other stakeholders to give their valuable comments and feedback related to this article to him on clive@baz.org.zw or on numbers 04-744686, 0772206913