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Steps to tame your passions for a healthy financial score in 2022

By Patrick Muinde | Dec 25th 2021 | 6 min read
By Patrick Muinde | December 25th 2021

Jared Opiyo shopping for Christmas at Naivas Moi & Kenyatta Avenue Junction in Nairobi on December 24, 2021. [Wilberforce Okwiri, Standard]

Year after year, the month of January is a nightmare to millions of people especially for the poor and those in the middle-class income brackets. On last week’s piece, we explored the dilemma consumers’ face for their festive spending. Ironically, while majority of people suffer from January blues, stock markets have over the years recorded surging prices on many counters.

This is analysed in corporate finance as a market anomaly. Simply put, the markets behave contrary to what rational investors and market analysts would expect. While many investors would be expected to be low on cash for investments, the market experience higher demand for shares that drive prices up.

Empirical evidence has attributed this anomaly to tax-loss harvesting, consumer sentiments, year-end bonuses and rising year-end performances among others. Borrowing from last weeks’ article on this page, the good performance at the end of the year for many businesses is attributable to increased consumer spending across almost all retail sectors. The question of end-year bonuses finding their way into the stock market is indicative of the behavior of financially savvy individuals that separates the have and the have-nots.

The inferences we could make here is that while the financial underdogs -the poor and the middle-class wannabes blow their final coins into January miseries, the haves are balancing their wealth portfolios. This is probably after milking the ‘good feel’ effect from the lesser mortals, and then quietly slip away into exotic holidays from mid-January through February.

An interesting observation I have made over the years is that business owners work hardest over Christmas when every other person is merrymaking. The question is: Could this behaviour be a pointer into the true genius of making money and/or creating wealth? Is there something they know better than the millions who live their entire lives without ever breaking through into the true world of money?

Now that todays’ article happens to fall on Christmas day, it is only fair to remain true to the spirit of this column: to demystify money issues in order to build a healthy economy. Only through this way can we speak of truly shared prosperity.

Just as the stock markets show anomalies, there exist sociological and psychological factors that distort our decision-making processes. Modern behavioral economists opine that reducing how individuals make economic choices into simple rational or non-rational behaviors is simplistic. In reality, attributes borrowed from sociology, economic psychology, evolutionary biology and neuroeconomics influence some of the money decisions that we make, especially on a time like this.

As surely as the sun will rise from the East on Sunday, January 2nd 2022, millions of folks across this nation will turn into social media, TV and Radio stations to whine on their bad decisions over the festive season. It has always been like that, except for a minority few. Me thinks it is a bad way to begin a new year, yet the stock and money markets behave in the exact opposite. I could be wrong, but the Holy scriptures talk of even the little that the poor have been taken away from them and added to the rich. The end-year and the new-year behaviors seem to be a classical fit of this piece of scripture. These five habits could set apart the minority from majority in this analogy of things.

One, understand the times and seasons – individual financial choices cannot be made in isolation of the macroeconomic environment. The world is still battling a health pandemic that has battered at least majority of the economies in the world. At national level, the COVID-19 cases are surging rising a cloud of uncertainty as to whether another lockdown may become necessary.

The stimulus packages have been vacated with a very remote chance of been reinstated due to the fiscal challenges facing policymakers. Schools reopen immediately after the holidays for another four terms year in a race to normalize the learning calendar in 2023. Many parts of the country are in the thick of a severe drought and famine, and potential second wave of locust attacks. Besides, it is that year again when ethnic mobilization becomes the choice weapon of a supposed democratic competition. All these externalities must come to bear as we chose how to enjoy the festivities.

Two, avoid the herd mentality – in the money language, this refers to the behaviour where individuals in a group act collectively without a central foundational direction. In our African genre, it is the type of behavior of sheep been led for slaughter. For millions who suffer from the post-spending dissonance, it is because their choices were influenced by the spending habits of family, friends, colleagues, strangers on social media and advertising/marketing gimmicks among others.

Their decisions are devoid of adequate planning, strategy and individual logic. Others are trying to run away from the ghosts of a difficult upbringing that has no relevance to their current financial wellbeing. Worse still, some go to far extremes to seek recognition or status from people they even don’t like, as renown motivational speaker Wale Akenyemi writes. If there is one place it is advisable to be extremely selfish, it is when it comes to money decisions. Your individual welfare and self-preservation is the rule rather than the exception.

Three, understand the concept of delayed gratification – while we live in a generation of instant fixes like instant coffee, microwaves and pressure cookers, the rules of economics remain medieval. The long short of it is that it is wise to establish a stream of ‘golden slaves’, enslave their children and grandchildren before you start eating them. This is what we call money working for you instead of you working for money. Once you have enough working for you, then you can even take a cruise ship for six months without a worry in the world.

Four, understand the value for money logic – this is a broader principle than prices of things as the majority of people mistake it to be. For instance, why will a cup of coffee cost say five times more on a coffee shop along Kimanthi Street in Nairobi than it does downtown on river road? During the festive season, while prices often rise in sizeable proportions, the law of large numbers and crowds often interfere with quality, ambience and customer attention.

My experience is that other than the need to belong, it is much easier to get the same holiday fun and undivided services just days after Christmas. That may explain why majority of the real financial gurus opt for the off-peak seasons for their vacations. Probably that is another secret of wealth creation unbeknown to the rest of us commoners!

Finally, X-mas travels are not only for urbans to their shags – this is another anomaly on these parts of the world. While across the world people travel a lot in this season, ours is a bit peculiar where it is almost natural for folks to migrate to their rural homes from their urban dwellings. While some may argue that it is a good way to promote rural economies, most shopping is still done in the towns. Then, the vehicle boots came back full with foodstuffs. Isn’t this not the classical zero sum game?

But food for thought, do our rural folks not deserve to take holidays also? Something tells me this is an unfair equation. Folks from the rural areas should plan to vacation too. I guess we all have equal rights to make merry and enjoy the season.

To our faithful audience and fellow country men and women, from this page we truly wish you all a lovely Merry Christmas.

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