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Save more for your own and Kenya's financial stability

As observed from various studies, Kenya’s savings rate is way below Africa’s average of 17 per cent. [iStockphoto]

In a world where people are not often reminded to save their money, it is easy to overlook the value of savings and investments. With so many other instant gratification financial options available, why would anyone be convinced to save for an unknown future?

The truth is that saving is a powerful tool for an individual and country’s economic transformation, especially in countries like ours where the population has a low savings culture. For years, Kenya has struggled with poor saving rates and high levels of reliance on foreign aid. This has led to significant social and economic challenges.

As observed from various studies, Kenya’s savings rate is way below Africa’s average of 17 per cent. Uganda and Tanzania have already crossed the 20 per cent mark, signifying a more advanced savings culture.

It can be argued that Kenya's low savings culture stems from several factors including poverty, inadequate financial education on saving and a limited range of available financial incentives. This has made it difficult for Kenyans to build up their savings over time.

The current national discourse on saving and investing influenced by President William Ruto's remarks on various occasions is a welcome conversation. Dr Ruto has emphasised the need for Kenyans to embrace the culture of saving as part of efforts to improve the country's economic situation.

One of the discussions sparked by the president is on pension contributions by those in formal employment, which he notes is insufficient. I could not agree more.

Currently, employees contribute a minimum of Sh200 monthly, which is usually matched by an equal contribution from their employers, translating to a maximum of Sh2,400 annually. This is far from enough for people to live comfortably during retirement. In addition, the pension scheme only serves people in formal employment, leaving out a vast majority of Kenyans who work in informal sectors.

Nonetheless, all hope is not lost. As the government and relevant sector players combine efforts to enhance and boost national savings, Kenyans looking to start their savings journey have a variety of savings products to choose from.

Financial institutions such as banks and saccos have numerous savings products that cater to different saving needs and goals. Some savings accounts require as little as Sh50 deposits to start earning interest.

What should be done to encourage people to save more? The government needs to develop broad policies that cover on other savings instruments besides social security that will provide financial security and promote savings in the long run. The government’s plan to match pension savings by a shilling for every two shillings set aside should be broadened to also cover other savings incentives. This will help improve Kenya's economic situation because it would mean more money will be available for investment, which would lead to more jobs being created.

Mr Lekolool is the Kenya Post Office Savings Bank (Postbank) Managing Director