Digital savings key for a rainy day

Kenya records a low level of savings compared to its peers in East Africa

In Summary
  • Africa’s savings habits are relatively low compared to the rest of the world.
  • Gen X and Y have recorded lower disposable incomes relative to previous years

Situations such as health emergencies, education, housing needs, healthcare, leisure and travel or retirement call for one to have cash set aside.

This calls for individuals to start planning early, and save diligently and digitally to be able to enjoy great benefits.

Over the last two years, Kenyans have also grappled with increased costs of living due to increased food, energy and housing prices which have directly affected household spending.

The pandemic has further exacerbated this with many experiencing a reduction in their regular sources of income within a short timeframe.

Further, rising inflation rates over the last two decades have significantly reduced the proportion of income for lower to middle-income consumers.

As a result, Gen X and Y have recorded lower disposable incomes relative to previous years and find it more challenging to save and invest for the long term.

According to a World Bank study, Africa’s savings habits are relatively low compared to the rest of the world.

For an economy to register sustainable economic growth, savings play a critical element.

In East Africa Today, Kenya records a low level of savings compared to its peers.

For instance, the most recent data from the World Bank highlights that Kenya had 14 per cent of gross savings to GDP, which is low compared to Uganda which had 23 per cent, and Tanzania which had 36per cent and further east India which has 31 per cent.

The data clearly shows a savings gap in Kenya and calls for policy and structural interventions that will promote a national saving culture.

The role of digital technologies

Digital finance could very well be the catalyst that is needed to champion individual saving. In Kenya, digital technologies have been the key enabler of financial inclusion.

A case in point is the impact mobile money has had in increasing access to payments and credit.

This, coupled with increased mobile penetration and shifting consumer behavior towards digital transactions, provides a solid foundation for shifting individual perception towards low ticket savings and investment products in the country for both the urban and rural demographic.

This is not forgetting the impact the pandemic had on individual money perceptions across all income levels.

The Wealth Expectancy Report, recent research done by[ii] Standard Chartered shows that the pandemic prompted consumers across the globe to take stock of their finances and to educate themselves on how they can improve the way they manage their money.

Over 50 per cent of the respondents said they were looking to manage their finances in new ways with mobile apps, and review their budgets, savings plans and debt management to improve their chances of achieving their financial goals.

Kenyan consumers in the survey were the most likely to be careful with their spending 93 per cent, and the most motivated to improve their money-management skills.

We can clearly see that there is an emerging attitude change towards savings and investments, especially among the younger generation. However, to sustain this wave, we need to shift the narrative on savings and investments from a ‘nice to have to a ‘must have’.

That way, the urgency and positive implication of a consistent savings behavior can be a motivating factor.

This shift will also influence the credit and savings balance. [iii]The 2021 FinAccess Household Survey shows that over five years till 2020, the uptake of credit has risen much faster between 2016 and 2021 compared to the savings rate, calling for more savings mobilisation efforts.

Leveraging digital technologies, we can give people access to low-ticket, digitally accessible savings platforms, encouraging mass adoption of consistent saving and investment habits.

This points to a high preference of individuals for digital platforms which are affordable to many people and with friendly market rates. It also alludes to customers seeking flexibility and quick access to money whenever they need them.

Also, the role of credible formal institutions that are utilising digital technology is key while providing much-needed market-relevant products and services.

As Kenya seeks to achieve vision 2030, the role of digital technologies in supporting the digital economy cannot be overemphasized.

The extent to which the financial services sector adopts emerging technologies will be a huge determinant of the progress that will be made in increasing the savings and investment uptake in Kenya.

With a largely youthful population and a high adoption rate of digital finance tools, digital low-ticket savings and investment platforms will positively impact the gross national savings and increase household resilience during economic shocks such as the one experienced due to Covid-19.

By encouraging a high savings culture, individuals will not only reduce reliance on credit for emergencies but will also increase their access to opportunities such as education and entrepreneurship, which are instruments for socio-economic growth.

As such, a savings culture will not only drive individual impact but will also push Kenya towards a sustainable savings rate that matches its income per capita.

In light of this, the financial services sector should therefore harness the opportunities presented by digital technologies to provide savings and investment products that are accessible, affordable and sustainable for all.

The writer is the head of Wealth Management at Standard Chartered Bank Kenya

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