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The power of pennies: Why every random shilling counts

By Graham Kajilwa | December 4th 2021
By Graham Kajilwa | December 4th 2021

Making a habit of saving every penny fosters a healthy saving culture over time. [Courtesy]

If a beggar walked up to you on the street today, what are the chances of you giving them Sh1,000 or even Sh200?

To many average Kenyans, the chances are slim to none. But they will have no qualms giving out a random Sh5 or Sh20 coin.

For some, this is a way of decluttering their pockets or handbags.

Little wonder, then, says Personal Finance Academy Chief Executive Wahome Ngari, shoppers complain if their change is traded for sweets at a supermarket or the bus conductor conveniently forgets to give you back your Sh10 change.

Mr Ngari agrees that many people have little regard for coins.  

“If you found Sh1 on the ground, chances are you will not bend to pick it,” he says, adding that sometimes we do not know the value of that shilling.

“If you took away Sh1 from the Sh10, it will no longer be Sh10. If you had Sh1,000 and removed Sh10, it cannot be Sh1,000, the same as when you deduct Sh100 from Sh1 million. That little coin counts because it makes the whole be complete,” says Ngari.

He hypothesises that if you saved Sh1 monthly on compound interest for 25 years and invested it in a fund, you would get a 12 per cent return, which would roughly come to Sh3,600.

If you saved Sh10 under the same terms, it would earn you Sh36,000.

“For many people, that is more than their monthly rent... but we do not see that,” says Ngari.

If you saved Sh100, it would come to Sh360,000 in the same period, which is enough to get you an old car or a piece of land somewhere, pay college fees or take a trip out of the country.

“But how often do we lose Sh100 here and there?” he poses.

If you push this figure to Sh1,000, Ngari notes, it would rake you in Sh3.6 million, which is enough to buy a new car, a house or pay university fees for your children.

But why is maintaining such financial discipline difficult for many people?

“It is because we do not value what it [the shilling] can do. If you lost Sh10, I don’t think you would walk back trying to find it,” says Ngari. 

“Over time that becomes a very big leakage and that (leakage) gets us not to do the things we could be able to do,” he says.

But how can one secure that shilling and does it really lose value?

One way of doing this is to move from cash to cashless transactions.

Wahome Ngari, CEO of Personal Finance Academy. [Courtesy]

According to Director Research and Policy at Kenya Bankers Association (KBA) Samuel Tiriongo, the genesis of the coins phenomenon can be explained from the global perspective where as the economy grows and inflation goes up, prices of basic commodities are also revised up.

The market, as a result, has to adjust the prices of goods and services, which is dependent on the denominations of cash in circulation to aid transactions by issuing change.

“Right now in the market, the things that cost less than Sh5, for instance, are countable and even traders on their end would also price commodities based on convenience of change,” says Mr Tiriongo.

He further explains that the value of the shilling is determined by the inflation rate, which is managed by the Central Bank of Kenya (CBK).

The regulator’s targets an ideal inflation rate of between 2.5 and seven per cent.

“This kind of inflation maintains the purchasing power of consumers so that the pace at which the shilling loses value is slowed down to a level that it remains relevant for transaction purposes,” says Tiriongo.

He adds that there is a feeling that round figures like Sh15, Sh20, Sh25 and anything in between would generate Sh1 coins, which in a way are cumbersome even for the traders since it is easy to deal with round figures.

“But I think as we move away from even cash-based transactions to digital or mobile money-based transactions, the craze to go back to figures that are not so round, say Sh7, Sh12, Sh13, can easily come back in that sense,” says Tiriongo.

“If you were to be given a change of Sh22, it is possible that the next morning you are likely to leave the Sh2 behind and take the Sh20.”  

Tiriongo says in a way people find it cumbersome to move around with a single unit of Sh1.

“I think the concern keeps diminishing over time with digital payments replacing the cash-based payments,” he says.

Another way of ensuring that coins count in your spending is to engage in a saving challenge.

Through such a challenge, Personal Finance Academy boss Ngari says, one can save a given amount of money by using locked savings account products like M-Shwari or a piggy bank.

“You can invest even Sh100. If you contribute Sh10,000 to a Sacco and you increase it by Sh100, they will not reject it; Those little monies can be invested,” he says.

Ngari documents the power of one shilling, referencing the Nairobi Securities Exchange where some stocks cost as much. 

For instance, Kenya Power shares at one time dropped to about Sh1 and before rising to Sh1.80.

“That means if you had invested Sh1, it would give you Sh0.80. That’s a whopping 80 per cent in barely a month. That is how powerful a single shilling is,” says Ngari.

“For a lot of us, we do not have regard for Sh1, and that way we do not have regard for big money. If we get into the culture of taking care of every shilling, the shillings will take care of themselves. If you are taking care of the coins, the notes will take care of themselves,” he adds.

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