Asset managers and financial executives have tried to explain why youth, particularly millennials, are not saving or investing as much; perhaps when compared to baby boomers.
And severally, the reason behind this not-so-financially sound culture has been blamed on the non-existence of youth-friendly saving platforms that utilise technology or the gig economy. It is worth noting that most workers’ employment status today is not permanent and pensionable like previous generations.
Some people argue that millennials and their fellow Generation Z found the world easier so much that they fell into gambling and other get-rich-quick schemes which have worsened their financial discipline. It is rare to hear that the reason millennials or today’s working generation is not saving as much is because of ‘too many responsibilities’. But what is the real reason why this privileged generation does not save or invest?
Bitange Ndemo, a professor of entrepreneurship at the University of Nairobi, School of Business, says the dependency ratio in the country stands at 70 per cent.
This gives a ratio of 70:100 which translates to 7:10. This means for every seven dependent Kenyans, there are 10 working individuals – a majority of them are millennials at the moment.
This ratio means individuals are supporting more than their immediate family (nuclear) as the average number of people in a household is four (3.9) according to the 2019 census data by the Kenya National Bureau of Statistics (KNBS).
In such a scenario, Ndemo says, even the 50/30/20 per cent saving rule may not work. This rule has it that 50 per cent of one’s pay goes into household-related issues like rent, 30 per cent is for personal needs and wants while 20 per cent is for savings.
“But we have not hit that level (20 per cent),” says Ndemo.
He adds: “Our savings rate in Kenya is at five per cent and that is among the lowest in the world. If you look at Ghana it is 25 per cent; India is 30 per cent and China is about 35 per cent.”
The dependency ratio, he says, is calculated by combining individuals who are aged 0-14 years and those above 65 years against those of the working age.
“These are children going to school (0-14) or retired parents (above 65),” he says.
“The ratio in Kenya is 70 per cent which makes anyone of us who has some earnings spend a lot on this category.”
Just this week, there was an incident of a 73-year-old man in Kitale who sued his 48-year-old son, for upkeep. According to court documents, the man, Gideon Kisira Cherowo, wants the son, who works with a government agency, to surrender 20 per cent of his pay as upkeep.
He also admits in the papers that the son, whom he is suing, is the only of his four children who is gainfully employed. Cherowo’s argument is that he educated the son and even contributed to paying his daughter-in-law’s dowry with four cows and some unspecified sum of money.
When father sues son
In such a scenario, the son is not expected to assist not only the father but also the three siblings.
While some Kenyans were outraged with the move of the man, others as well demonised the son.
“I have two adopted daughters, I can’t imagine doing this leave alone my biological ones. It is the duty of a parent to educate every child with no strings attached,” Tweeted one Kenyan.
Another one argued: “He has the right to demand for the salary. He had always wished his son good and he did everything within his ability to ensure that his son gets the best.”
According to the KNBS 2019 census data, the number of dependents by age stands at 20,412, 475 while those being dependent on (assumed to be earning as they are in the working age) are 27,151,821.
However, not all the 27,151,821 are employed or are engaging in any economic activity. If you consider the ideal progression to getting employed in the country, it means those aged 15 to 24 are generally still students either in secondary school and vocational colleges or pursuing degrees at the university level. When this is considered then the working population shrinks to 17,418,290. And still, not all these individuals are in meaningful employment.
As such it means 30,146,006 individuals are depending on a 17,418,290 for their upkeep.
Zamara Group CEO Sundeep Raichura says for those earning, on many occasions they are forced to withdraw their savings for emergencies.
“Lots of people do not save at all but those who do, a lot of times their savings are called upon with the use of emergencies,” says Raichura, who manages pensions.
“You save a little bit of money, there is a medical emergency, there is a flood or drought and you use all your savings,” he said during the launch of a WhatsApp-based savings and pensions plan.
Raichura says insurance can be used to secure such savings and protecting your family and business during such emergencies.
“In this solution, we have an embedded funeral cover of 35 cents a day. Every member of the scheme will have a Sh25, 000 funeral cover. You do not have to go anywhere else. We will add other insurances and covers,” he says.
Prof Ndemo relates to such unplanned needs saying several times he has found himself added to WhatsApp groups for fundraisers to build churches or hospitals.
“I was getting angry with WhatsApp because they say we have a fundraiser and you do not have to come just send through the forum,” says Ndemo.
“Sometimes they lie so and so has paid Sh20, 000 so that you feel compelled to also give more.”
“We can change this through a higher savings rate,” he says.
Raichura references to the high dependency ratio noting that many young people - 60 per cent of the country’s population - are aged 20 and below.
“But we got two million Kenyans above the age of 60 with another a million approaching,” he says.
“In the next 20 years, we will have 9.5 million Kenyans above retirement age.”
He says the cost of providing even a moderate stipend for them will be Sh334 billion in today’s numbers.
“It is not going to be possible for us to do that as a nation,” says Raichura.
However, he says, if we just have 50 per cent of that population saving even a small amount of money, the amount of cash that will be accumulated in the country as savings, will be bigger than the pension industry itself which is valued at Sh1.5 trillion.