Dissecting Nigerians’ savings culture amid socio-economic headwinds

Savings culture is dying, household investments disappearing and Nigerians’ living standards falling. In this piece, EHIME ALEX and BLESSING NZEDIEGWU examine the worrisome situation

Majority of Nigerians are challenged with setting aside a percentage of their daily or monthly income as savings. Some do not save because they live from hand to mouth, while others blame it on various socio-economic issues.

However, the 50:20:30 personal finance rule of thumb states that individuals spend up to 50 per cent of their after-tax income on needs, save 20 per cent and spend 30 per cent on wants.

While the principle may not be adopted hook, line, and sinker, financial experts believe it offers a baseline for cultivating a disciplined financial lifestyle. Whether individuals have enough or not, they also believe it is important to imbibe a culture of saving.

In Nigeria, there is a lack of incentive to savings, which adversely affects individuals’ savings attitude. Poor banking habits, attitude of banks to small savers, poor orientation, unemployment, instability in the political system, corrupt taxation system and instability in the banking system are some of the factors believed to be hindering individuals’ savings.

The Central Bank of Nigeria had, in September 2020, dropped the savings account interest rate to 1.25 per cent, pegging it at a minimum of 10 per cent of the Monetary Policy Rate, although some banks pay as high as 3.5 per cent to woo depositors. Just yesterday, CBN raised the interest rate to 13.5 per cent for the first time in years from 11.5 per cent to tame inflationary pressure sapping the country’s economy.


Poverty line

A latest report by the World Bank indicates that as many as four in 10 Nigerians live below the national poverty line. It said sluggish growth, low human capital, labour market weaknesses and exposure to shocks are holding Nigeria’s poverty reduction back.

Entitled, ‘A Better Future for All Nigerians: Nigeria Poverty Assessment 2022’, the report states that jobs do not translate Nigerians’ hard work into exit from poverty, as most workers are engaged in small-scale household farm and non-farm enterprises. It further discloses that just 17 per cent of Nigerian workers hold the wage jobs best able to lift people out of poverty.

Climate and conflict shocks, which disproportionately affect Nigeria’s poor, are multiplying, and their effects have been compounded by the Coronavirus Disease, yet Nigerian government’s support for households is scanty, the Bretton Woods institution said.

While hinting that households have adopted dangerous coping strategies, including reducing education and scaling back food consumption, the World Bank feared the measures could have negative consequences for their human capital.

“It is clear that much needs to be done to help lift millions of Nigerians out of poverty, including boosting health and education, bolstering productive jobs and expanding social protection,” the report quoted the World Bank Country Director for Nigeria, Shubham Chaudhuri, as saying. “Yet implementing pro-poor initiatives requires unlocking fiscal space; reforming expensive subsidies – including fuel subsidies – will be essential, alongside countervailing measures to protect the poor as reforms are effected.”

The bank urged Nigeria to focus on deep, long-term reforms to foster and sustain pro-poor growth and raise Nigerians out of poverty. It said this could include macroeconomic reforms (including fiscal, trade and exchange rate policy); creating policies to boost the productivity of farm and non-farm household enterprises as well as improve access to electricity, water and sanitation, while bolstering information and communication technology.


Savings culture

A disciplined and regular savings culture could, over time, lead to accumulated wealth. However, many Nigerians live below the poverty line, not necessarily because they have low incomes or poor salaries, but perhaps they lack savings and investment culture.

According to the Harmonised Nigeria Living Standard Survey reports, Nigeria spends about N25bn daily on food items, showing that there is high propensity to consume but low propensity to save.

In an article entitled ‘Building Savings and Investments Culture among Nigerians’ published by ResearchGate, a commercial social networking site for scientists and researchers, the authors stated that the figure was quite alarming for a developing nation such as Nigeria. They added that high consumption would mean low savings, low investment and low capital formation, adding that if it persists, the populace would be trapped in the poverty loop.


Why save?

According to the World Bank collection of development indicators, compiled from officially recognised sources in May this year, Nigeria’s Gross Domestic Savings as percentage of Gross Domestic Product stood at 21.66 per cent in 2020. Highest at 33.18 per cent in 2012, it fell to 3.08 per cent in 2016, before rising progressively to 15.47 per cent, 17.799 per cent and 19.83 per cent in 2017, 2018 and 2019 respectively.

A review of extant literature revealed that people save and invest for several reasons, among which are to enhance the standard of living, take advantage of rare business opportunities and meet unforeseen circumstances. Savings can be done through piggy, thrift collection, credit unions and banking systems. In the other hand, investment is in the form of real asset, financial asset and foreign exchange.

No matter how small one’s income is, savings helps to mobilise funds for investment and enhance the living standard of any household.

A trader, Morenikeji Ajayi told Financial Street that she was able to save due to the nature of her business, adding that the savings has helped growth in her business and finance.

A banker, Oluwaseyi Majekodunmi, said, “I understand the benefit, but the salary at the end of the month is nothing to write about compared to the current situation in the country. The little savings I made, I have to touch it because I do not want to borrow from anyone because no one I know seems to have.”

CBN Deputy Governor, Economic Policy Directorate, Dr Okwu Nnanna, in an article entitled ‘Promoting Savings and Investment Culture for National Development’, said boosting the level of savings is of great importance if a country is to achieve and sustain high investment and output growth rate.”

Nnanna, who was director of research department at CBN, at a time, highlighted that the fundamental issues militating against an effective savings and investment culture in Nigeria remained financial sector distress, high inflationary expectation, low yield on investments and inappropriate institutional structures.

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