For many salaried individuals, there is always that anxiety that hits you whenever your pay does not hit the account on time. The reasons for salary delays vary- it maybe a public holiday so banks are not working, new protocol introduced in your bank or just a financial planning hitch with your employer which leads to money delaying to hit your account by a day or two.
During this period, it is common to keep checking your account through USSD codes, ATM stops or internet banking to find out if your account has been credited.
Acting this way when your salary delays demonstrates innate lack of self-control when it comes to finances existing in almost all of us.
It should dawn on you that once you retire, such will be the life. Only that when that time comes, there will be no surety of money hitting your account as there will be none. Or if there will be, then it will be dependent on how much you put aside during your working days.
“We will all find ourselves at certain ages when we are vulnerable; we cannot continue to work because the bodies are not as strong like we used to be, and that stage requires us to transition from work and go into retirement,” says Simon Wafubwa, Managing Director Enwealth Financial Services Ltd.
There is also the likelihood that whatever money you will be getting at the end of every month as a retiree will be less than what you used to get.
It should therefore be a concern to the working population on how disciplined they are when it comes to saving for their retirement. Wafubwa explains that if one is retiring on a salary of about Sh100,000 per month, their minimum pension should not be less than Sh40,000 per month.
“So that in that monthly pension you should be able to take care of your expenses like medical bills and house necessities,” he says.
Self-control as one of the virtues of financial discipline is a difficult trait to cultivate particularly because money is involved. The lack of it exhibits itself in how we spend and save as well. As Wafubwa notes, even after saving diligently for years, one is prone to make a wrong money decision once that lumpsum is paid out.
“If you have been lucky to save for retirement you will get what we call a cash lump sum. That cash lump sum sometimes distorts people’s psychological equilibrium. So, you get about Sh10 million; it’s a really huge lump sum. You are used to manageable cash of about Sh100, 000,” Wafubwa says adding that such are the moments when one chooses to treat themselves well for working all those years.
He says when one is working, they are assured that every end month when they get to the bank, their salary will have been wired.
“Maybe you are used to Sh100,000 per month or Sh200,000 so in your psychological steady state, you expect Sh100,000 per month that you are used to for 30 or 20 years you have been working... only for you one day to get Sh10 million."
He says such situations cause individuals to be tempted to reduce the money to what they can manage and hence such decisions as ‘treating yourself for a job well done’.
Cynthia Stella Waga et al in a study published July 2021 details the challenges with self-control when it comes to saving for retirement.
The study titled Financial Behaviour and Retirement Planning in Kenya, Assessing the Role of Self-Control Bias cites Pompian (2006) who documents that money spending is one of the areas in which individuals exhibit a lack of self-control.
“The fact that self-control bias can cause a person to concentrate on today at the expense of tomorrow can be dangerous to one’s wealth, especially when one retires,” the paper reads.
“This bias may also cause individuals not to plan appropriately for their retirement (in the long-term) even if one has the requisite financial discipline in the short term.”
The paper calls this the pursuit of immediate gratification.
“To secure their long-term financial well-being, an individual must practice self-restraint in the short term,” the study adds.
Cynthia Stella Waga et all notes that several studies have linked self-control with various financial behaviours. For example, Gathergood (2012) found that individuals with self–control problems are more likely to suffer from unforeseen expenses and credit withdrawals, leading to over-indebtedness.
“At the same time, Achtziger et al. (2015) report that individuals with low self-control are more likely to engage in compulsive purchases,” the study reads.
The findings in this study, to an extent, link this financial behaviour to a gap in financial literacy and education further detailing as part of its conclusion that policymakers and pension scheme companies incorporate behavioural change initiatives within their financial educational programs, making them practical.
This will ensure members shift towards responsible financial behaviour that would enhance members’ participation within the (pension) schemes and encourage them to participate comprehensively plan for their retirement.
“Furthermore, the use of measures that inculcate self-control and avoid short-term gratification will also help improve retirement planning,” reads the study.
Richard Muteti, chief executive officer Kenya National Federation of Jua Kali Associations, while speaking during a financial inclusion training organised by Zamara Group, a financial services company whose portfolio includes pension schemes, said saving is something most do not think about very often.
“Some of us might be putting money in a bank account or any other financial institution, but few are able to consistently save,” he said.
Muteti is of the opinion that the high cost of living has a role to play though.
“This is because we live in an increasingly expensive world, and we have to spend a lot of money just to get by,” he said.