Why aren’t Kenyans saving even for their retirement?

That is the question that worries economic planners ranging from the country’s foremost budgetary planning office, the Treasury, to pension schemes.

Even as the average household net worth plunged, the cost of everything from health care to housing has risen for decades at rates well beyond that of inflation.

Most Kenyans are living from paycheque to paycheque, barely able to save as little as Sh100 from their monthly earnings.

According to media reports, most bankruptcies result from health issues, job losses and broken families, something no amount of cutting back on spending can protect against.

Finance Cabinet Secretary Henry Rotich in a past interview has expressed his apprehension about the lack of saving culture among Kenyans, which he argues, was affecting the country’s overall Gross Domestic Product (GDP).

He said Kenyans are saving only an average of 12 per cent of their earnings, which is too little to support any meaningful investment in any sector of the economy.

“The savings rate in Asian economic giants such as Singapore and Malaysia is as high as 40 per cent of individual incomes. If our GDP is to grow in double digit rate, people have to save more,” explained Rotich.

Treasury is not the only office worried of the poor saving culture.

Extreme poverty

Pension fund managers have also raised a red flag, saying that most Kenyans are not saving for their retirement, and are bound to live in extreme poverty in their old age.

Pension consultancy firm CPF Financial Services, formerly Laptrust, said low savings will see more Kenyans ‘retire into poverty’.

CPF Chief Executive Officer Hosea Kili noted that Kenya has an estimated population of 47 million people, majority of whom don't save.

In addition, more than 85 per cent of those working in the informal sector are not covered by any pension fund.

“Things are even grimmer in the informal sector where less than 10 per cent of cadres in that sector is covered,” Kili said.

The CPF chief executive opines that the Government should amend article 43 of the Constitution to make it mandatory for all Kenyans to contribute to a pension scheme.

“Kenyans in both informal and formal employment can contribute to a new fund to be set up by the National Treasury. The government can make a financial back up to the fund. Without this, a majority of our citizens are doomed to eternal poverty,” Kili averred.

Most Kenyans say they do not save much, especially in pension schemes because they earn little and barely have enough for their daily needs, let alone pension savings.

This is backed by data from the Kenya National Bureau of Statistics, which shows only 68,676, or 2.89 per cent, of formal sector employees in Kenya earn more than Sh100,000 a month.

More than half of formal sector workers (64.5 per cent) live on wages ranging from Sh20,000 and Sh49,000. This scenario has eroded wage earners’ purchasing power and saving abilities.

Monthly income

Eric Gitimu who works as a gas attendant at a petrol station in Nairobi’s sprawling Eastlands area, says he earns Sh15,000 a month, and lives alone in one of the estates in Eastlands paying a monthly rent of Sh3,000.

His wife and children live upcountry, in Kirinyaga County.

“One of my children is in secondary school while the other is in primary. I cannot afford to bring my family to Nairobi because of the high cost of living here,” Gitimu said.

“I only send home what I remain with after factoring in my monthly expenses, which is about Sh3,000. I spend the rest. I don’t save.”

When pressed further, Gitimu opens up that he once belonged to a chama made up of fellow employees, but quit when some members proved to be untrustworthy and ceased to contribute to the group.

“I was in a chama but it proved a bad idea. You cannot trust people who want you to contribute to a certain cause alone but they back off when it is their turn to contribute. I quit and I gave up on saving.”

Gitimu also confesses that he has a number of bad social habits which keep him from saving.

“I drink almost every weekend and I confess that takes a toll on my income. I keep saying that I will stop the habit and save the money, but it never happens. Most of the time I am broke two weeks before I get my pay.”

Murithi Kiome, a trained nurse and HIV counsellor with one of the Non Governmental Organisations in the city has been employed for the last three years. He earns a gross salary of Sh130,000.

Mr Kiome is married and has a daughter. But despite his relatively good salary and small family, he still finds it hard to save.

“The only money I save is the monthly deduction our in-house Sacco makes from my salary. I also belong to a mandatory pension scheme at my workplace and that’s it,” Kiome says.

“When I was starting out at my work place, I bought a car through a loan. I have also borrowed money to pay for a Masters degree I am undertaking and I send home money every month to my parents.”

Kiome observes that by the time a family budget including entertainment and upkeep money for his wife is drawn up, there is nothing much left to save.

Peter Mwai, a sociologist and former lecturer at the Jomo Kenyatta University of Agriculture and Technology says sometimes a person’s decision to save for the future is a personal thing and has nothing to do with his income.

“If we look at the idea of saving through the lenses of behavioural science, we see that many people don’t save because they have little incomes but because they don’t want to forego some luxuries and save the money for the future. You can earn as little as Sh20,000 and still sacrifice some needless expenses to save,” Mwai says.

The Institute of Economic Affairs Chief Executive Kwame Owino argues that most Kenyans earn meagre wages and are not left with much to save as a result.

On top of that, our banking system is aligned in such a way that it excludes low income earners.

“Our banks favour people with pay slips while excluding the wage earners. Saving through banks can prove a bit difficult for those who banks describe as ‘unbankable,” Kwame avers.

He also adds that government expenditure is abnormally high and much of it is funded through taxes.

“Taxing Kenyans highly leaves little room for them to make any meaningful savings. The problem is instead of the state investing these taxes in a proper welfare system that can take care of citizens when they retire, or when out of meaningful employment, it pumps all of them into questionable expenditure,” Kwame said.

Francis Mwangi, a financial analyst at Standard Investment Bank explains that as much as most Kenyans don’t have enough disposable incomes to spend and save, the state is the first culprit in the whole scenario.

“I expect that when you tax people highly, you also invest in a proper welfare system that can cushion them when they have no incomes,” Mwangi argues.

“If you can’t do that, then at least invest in a system that can create proper jobs for them, which can afford them good incomes enough to save. The Kenyan government is not doing that.”

Both experts concur that for a saving culture to take root, everyone needs to chip in and do their bit.

Banks have also been advised to provide the right products and incentives while employers ought to remunerate their employees well.

Analysts advise Kenyans to forego unnecessary expenses and marshal enough discipline to save.

They also want the State to cut down its appetite for taxes and put money in a healthy welfare system and create room for proper jobs as well.

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