Why you need to start saving in your 20’s

Young African American businesswoman saving money on piggy bank over isolated background serious face thinking about the question, very confused idea.

 ‘You only live once is a mantra almost every young person secretly lives by.

They know it is not a good lifestyle but try to avoid unsolicited financial advice on why it is important to develop a saving habit.

Young Kenyans may argue that they do not earn enough to spare some cash for the future or invest in a business, but personal finance experts say good saving habits must start at an early age.

To give it to the youth, though, the employment situation has not been favourable at all.

Majority of them are either unemployed, underemployed or working in small businesses that hardly meet their daily needs.

According to a quarterly labour report by the Kenya National Bureau of Statistics (KNBS), the unemployment rate stood at 10.4 per cent in March 2020, with the employment to population ratio estimated at 57.7 per cent.

The situation is getting worse as employers have become more selective, according to the State of Graduate Employability report by CPS Research International in May 2020.

The report said one in every three employers expressed dissatisfaction with the skills and knowledge of hired graduates in the previous 12 months.

The situation was made worse by the Covid-19 pandemic, which hit the country from March last year, rendering most youth jobless and digging into any savings they had. 

According to a KNBS survey, while only 34.1 per cent of working-age males were out of work, more than half of females, 51 per cent, were unemployed between May 2 and 9 last year.

Covid-19 also seems to have been harsh on women especially, with almost half of them rendered jobless by the pandemic.

The data also revealed that adults who were not working might have increased by four million to hit 10.9 million compared to seven million in December last year.

Amid the dire statistics, personal finance consultant Nancy Baraza says that having a cash reserve is the clearest way to survive uncertain economic storms.

“Young people should not spend all their money on entertainment alone. Save your money, it will help you during tough seasons, or better invest your cash somewhere to get an extra income,” she says.

Financial independence

Statistics suggest that more than 40 per cent of Kenyans will be forced to continue ‘working’ after retirement while a similar percentage will be dependent on family support.

Less than five per cent are expected to be financially independent, and an even smaller number will be comfortable in their retirement.

This says a lot in a country where pension penetration is at a paltry 12 per cent, despite various campaigns to rope in more people to save for their future.

A 2019 retirement preparedness report indicated that people aged 18-35 are the least prepared for retirement at a paltry nine per cent.

Those aged between 55 and 65 years are the most prepared to retire at 30 per cent, indicating that the level of preparedness for retirement increases with age. 

When asked about what they had done to prepare for retirement, 40 per cent of young people said they had not made any plans.

The younger age group of 18 to 24 years had the lowest awareness of ‘employer-provided benefits’ at 37 per cent compared to more than 70 per cent awareness for those over 55 years of age.

Lower exposure

“This (difference in level of awareness) could be attributed to lower exposure to the employment of the younger population, as compared to the older population.

“This age group needs to have a good knowledge of savings plans so that they plan their retirement life early enough,” the report said.

Ms Baraza concedes that it is hard to sell the culture of saving to someone who lives from hand to mouth.

“Majority of young people are employed in entry-level jobs. The remuneration can hardly sustain them till the end of the month, they are already surviving on the ropes,” she says. 

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