Introduction
The World Savings Day also known as ‘World Thrift Day’ was established on October 31, 1924 with the aim of creating awareness on the importance of cultivating a savings habit while promoting its benefits. So what are savings?
There are varied definitions available to describe the meaning of saving money. By some it is described as the amount left over once personal expenses have been met (Business Dictionary); by others it is described as the act of keeping money aside till a later date (Cambridge Dictionary); or finally, as asset accumulation and wealth creation over a specific period of time (Investopedia). In all definitions it is generally agreed that saving money involves delayed gratification and the act of keeping scarce resources for a later date.
However, for the majority of young people in Nigeria, the idea of saving money might seem ludicrous. Economic factors such as the rising cost of living, poverty, high unemployment rates and pressure to take on family debt make it difficult to put money aside. Furthermore, it has been widely reported that youth generally do not see saving as a priority earlier on in life.
More specifically, questions which may typically be asked by secondary and higher education students may be – Why save when I still have many years left ahead of me? Why save when I am still dependent on my parents or have little to no income? The notion of savings may be further challenged by reports which state that in particular regions of the country, youths lack adequate access to financial services such as savings accounts (EFinA, 2016).
Although the mitigating factors affecting the will to save cannot be denied, cultivating a savings habit could do much more good than harm. A 2012 CCAP (The Consultative Group to Assist the Poor) report on Youth Savings states that, saving early could help young people build assets and develop sound financial habits which would in turn positively influence the course of their lives. There are other specific reasons why savings are important which would be discussed in the next section.
Why Save?
The following are reasons why cultivating a savings habit is important.
- Greater Financial Independence – Cultivating a savings habit empowers young people in making their own decisions while relying less on family members. According to the United Nations 2013 Youth Financial Inclusion report, providing youth with financial services such as a savings account promotes asset building and emphasizes sustainable livelihoods.
- Less Wastage – The major source of income for most teenagers and young adults in Nigeria comes from allowances either from parents or guardians. Saving encourages youth to make the most of such income and avoid impulse buying. For example, a 2016 Geo Poll Survey taken to gauge the consumer spending habits of African Millennia in countries such as Nigeria, Ghana and Kenya found that young consumers in these countries are very image conscious and are spending over 50% of their earnings on personal care items. Furthermore, beauty is listed as the number one trend with the hair industry in particular estimated to be worth US$6 Billion.
- Making an effort to look good is commendable, however, spending the bulk of ones scare resources on image at the expense of much more pressing needs may rob a young person of greater opportunities.
- Builds Money Management Skills – Research also shows that youth in Africa who have access to savings facilities either in formal or informal contexts exhibit better money management skills. For example, a 2015 research report by the MasterCard Foundation on Financial Services for Youth in Sub-Saharan Africa states that African youth with access to savings services appear to be able to handle savings and budgeting activities better. They are also able to accumulate assets long term and improve their ability to handle financial transactions. It could also be argued that positive behaviors and habits are best cultivated in childhood. Maintaining a savings habit is also especially effective for youth when complemented with training in entrepreneurship skills.
- Compound Interest- Savings accounts typically reward account holders with interest on the savings over a period of time. Opening a savings account affords the account holder the opportunity to earn accumulated interest on the initial principal
- Potential Asset Effects – Besides building money management skills and competencies, research shows that cultivating a savings habit could also provide other positive effects. In a 2010 report on Youth Savings in Developing Countries, Save the Children, an international NGO describes these positive effects as “Asset Effects”. These asset effects which include economic, psychological, social, health and intergenerational effects could impact a persons, self-esteem, decrease risk-taking behavior, and improve the overall quality of life.
What Global Experts Say About Savings
Robert Kiyasoki, a Businessman and Author said:
“It’s not how much money you make, but how much money you keep, how hard it works for you, and how many generations you keep it for.”
Warren Buffet – is a Business magnate, Investor and second on Forbes list of the world’s top billionaires said:
“Do not save what is left after spending, but spend what is left after saving”
Suze Orman, Author, Financial Advisor, Motivational Speaker said:
“Stop buying things you don’t need to impress people you don’t like.”
Effective Tips on How to Save
There are numerous guides on how to save money. In general, the most important tips are as follows:
- Set a Savings Goal – Setting short and long-term savings goals help in determining what money should be spent on. Goals could also be used as a motivational tool to stay on track and avoid unnecessary expenses.
- Open a Savings Account – Opening a savings account typically helps the saver achieve their savings goals as money is not easily available to spend carelessly. Furthermore, as previously mentioned, a savings account usually pays interest on the initial deposit. Interest paid annually on saving range from 2% -6% depending on the particular bank. There are new banks currently operating which have been designed specifically to cater to Millennials. Such banks include Alat by Wema Bank. Also, over the past year, Fintech companies have created digital applications which assist both the young and old to save and keep track of spending and transactions. Such applications include Reach, Piggybank and Remita.
- Budget – A budget, which is an estimate of both income and expenses over a specified period also ensures that a saver sticks to their savings goals. Savers who budget are more likely to live within their means. As earlier discussed, young Africans tend to spend the bulk of their income on beauty and personal care products. Budgeting ensures that the saver only spends money on things they need while saving the rest.
- Take On An Odd Job – as earlier mentioned, most secondary or higher education students only receive income in the form allowances from parents or guardians. In such a case, a young saver should consider diversifying their earnings by taking on odd jobs. Odd jobs include tutoring, sales jobs, or even starting a small business doing something they are passionate about. Income from an odd job would ensure increased savings and asset accumulation.
- Invest your savings – Finally, once savings have been accumulated, young adults should consider investing their savings in viable assets. Assets such as Stocks, Treasury Bills and Bonds typically yield rewards for investors. For example, dividends are paid out on stocks while, interest is paid out on T-Bills and Bonds. Interest rates vary depending on the period of time they are held for. Investing is indeed a great way to further accumulate assets, diversify earnings and create wealth.
Conclusion
At first, cultivating a savings habit may seem tough, however overtime, the benefits far outweigh the limitations.
By Otunba (Mrs) ‘Debola Osibogun
B.Ed (Econs), MSc (B&F), FCTI, FNIM, MIoD, FCIB, FERP
President Consumer Awareness and Financial Enlightenment Initiative (CAFEi)
Former President of the Chartered Institute of Bankers of Nigeria
ABOUT CAFEi
The Consumer Awareness and Financial Enlightenment Initiative (“CAFEi”) is a nongovernmental organization focused on consumer awareness and financial enlightenment. CAFEi’s focus on consumer awareness is to improve the comprehensive understanding by the consumer of their rights concerning available products and services being marketed and sold. CAFEi”s focus on financial enlightenment is the process of improving consumers understanding of financial products and concepts, through information dissemination, instruction and/ or objective advice.
