Families turn to savings and credit to fight high cost of living

According to the latest Economic Survey, the use of savings increased from 69.9 per cent in 2019 to 74 per cent in 2021

In Summary
  • The use of savings increased from 69.9 per cent in 2019 to 74 per cent in 2021
  • Kenya's saving rate is at 12 per cent
A customer at a kiosk in Westlands, Nairobi
A customer at a kiosk in Westlands, Nairobi

Families increased the use of savings and loan uptake to meet the rising cost of living amid job loss due to Covid-19 in 2021.

According to the Economic Survey 2022, the use of savings increased from 69.9 per cent in 2019 to 74 per cent in 2021 while the uptake of credit rose from 50.4 per cent to 60.8 per cent in the period under review.

Last year, a report by the National Treasury showed that more than  half of families in Kenya cannot afford basic needs due to the  impact of Covid-19.

The report dubbed 'Economic impact of Covid-19 Mitigation Measures on Mwannchi' showed that  74 per cent of households in the country are struggling to put food on the table.

The few who  can afford food, clothes and shelter are forced to adopt new coping mechanism to boost their consumption revenue or cut expenditure. 

This further weakens the country's financial stability and hurts families preparedness to tackle uncertainties. 

It also further weakens Kenya's saving culture which is currently lowest in East Africa and below continental average of 17 per cent.

According to the latest  analysis by EFG Hermes, Kenya's saving rate is at 12 per cent

This is half of the average for low-income countries (26 per cent of GDP).

By contrast, neighbouring Uganda and Tanzania have already crossed the 20 per cent mark even though their per capita income is significantly lower.

The cost of living in Kenya has been increasing significantly for at least decade, with latest volatilities in the global market fuelled by Covid-19 worsening the situation. 

Transport Index which constitutes 9.7 per cent of the total household expenditure recorded the highest inflation rate of 12.3 per cent.

This was mainly due to increase in prices of petrol and diesel. Food and Non-Alcoholic Beverages Index recorded an inflation rate of 8.5 per cent in 2021.

Housing, Water, Electricity, Gas and Other Fuels Index, recorded an annual inflation rate of 4.8 per cent mainly due to increase in prices of kerosene, cooking gas and electricity during the review period.

The annual inflation as measured by the Consumer Price Index (CPI) increased from 5.4 per cent in 2020 to 6.1 per cent in 2021. The increase was mainly due to increase in the prices of fuel and food items.

Although inflation caused by supply chain disruptions and the rising cost of crude oil in the international market is being felt globally, the prices of basic commodities, such as maize flour, sugar, cooking gas, and petrol, have increased by more than 46 per cent since 2013, according to KNBS. data.

According to the latest survey, prices of most commodities, including bread, tomatoes, rice, potatoes, and meat, have been rising by between 16 per cent and 53 per cent since 2011.

Although access to credit grew significantly pre-covid, those excluded from accessing any form of financial services rose by 0.6 percentage points, to 11.6 per cent in 2021.

This could be partly explained by the effects of the Covid-19 pandemic that adversely impacted households’ and firms’ earnings and employment.

It could also be attributed to the inability of the youths to obtain national identification documents required to access formal financial services and providers, due to Covid-19 movement restrictions.

The overall usage of traditional bank accounts declined from 29.6 per cent in 2019 to 23.8 per cent in 2021 .

The mobile banking usage however, increased from 25.3 per cent in 2019 to 34.4 per cent in 2021 as more people increased use of the service due to Covid-19.