Why Kenyans retire broke

"I am working on some project."

If you have interacted with the relatively youthful lot, the working-class and individuals of moderate means, this is quite a common statement.

It shows progress, that somehow your life is heading somewhere – it may not be necessarily the right direction – but yes, your life is heading somewhere.

Sometimes you do not need to specify what project you are working on. And no one may bother to ask.

It is these "projects," according to a just-released discussion paper, that could be one of the reasons why the majority of Kenyans are not saving for retirement.

They are probably hoping to hit it big through unspecified means.

Education is one of these projects as the paper shows followed by cars.

The paper published in June by Enwealth, a financial services firm in partnership with Strathmore University and the Institute of Human Resource Management lists retirement as the second reason why Kenyans save. The first reason is big purchases.

“Majority of the respondents save for three major reasons: big purchases (31 per cent) and projects, retirement and future unforeseen expenses such as medical bills (26 per cent),” reads the paper.

Travel and leisure come fourth on the priority list of saving reasons.

Some 813 members of pension schemes were targeted in the study, with the survey analysing 244 valid respondents. The majority of them were aged between 25 to 34 years old followed by the 35-44 age band and 45-54.

The paper further shows that Saccos (24 per cent) are the leading vehicle for saving followed by pension through an employer (20 per cent), chamas (investment groups) and table banking.

Others are banks, money market funds, pensions as personal initiatives and shares. Treasury bills and bonds – despite how safe it is – is the least used saving vehicle used.

The paper documents savings and investment behaviours over the last year where it was found that 48 per cent of the respondents agreed that they save money every month.

Another 43 per cent of the respondents indicated that they have saved for long-term goals such as buying a car, education or big projects.

However, 44 per cent of the respondents, the paper reports, disagreed or strongly disagreed that they began or maintained an emergency savings fund in the last year.

“In addition, 43 per cent of the respondents disagreed or strongly disagreed that they have begun or increased their contribution towards retirement,” the paper says.

It adds: “These statements indicate that even if the respondents are saving, they are saving for long-term projects, including education and not for retirement.”

The weight of these projects could be the reason why almost seven out of 10 Kenyans ( 68 per cent) have applied for loans on mobile lending apps like Tala.

This even as 57 per cent of the respondents indicated that taking loans from mobile lending apps has hurt their saving habits.

The study notes that income levels influence the saving culture. The paper notes that it is imperative then that organisations ensure that the employees are sufficiently remunerated for work done.

“From the study above, it is evident that readily available sources of loans e.g. mobile apps hinders saving culture,” reads the paper.

It adds that Kenyans save an averagely of six to 15 per cent of their monthly income highly comprised of pension contributions followed by savings in Saccos.

“It is noticeable that employers who have pension schemes for their employees encourage people to save,” reads the paper.

According to the study, the more one earns, the more they are likely to save. For example, the respondents who earn Sh150,000 and above were able to save 30 per cent of their income.

“Most of the respondents who earn below Sh60,000 reported a low percentage of income allocated to savings, which indicates a low level of disposable income among these categories compared to their counterparts who earn above Sh60,000,” the paper reads.

“Interestingly, many respondents would wish to save more,” it adds.

Not having enough funds (56 per cent) is the leading barrier to increased savings and investments, the paper documents, followed by "I have obligations that require regular funding" (27 per cent).

The study appreciates that policymakers, practitioners and researchers are continuously focusing on the need for workers to prepare financially for their retirement.

“In Kenya, employer-backed retirement schemes may not be available for the employee to save or the amounts saved may not be adequate for retirement. To ensure financial security at retirement, individuals should save and invest more,” says the study report.

The study is aimed at bringing out the savings and investments culture among Kenyans by providing insight into the demographics, savings and spending patterns, personal financial management and saving behaviour, level of financial intelligence, debt and loan consumption, black tax (economic support to family), among others.

It notes that whereas access to financial services has tremendously increased, the rate of savings in the country remains worrying.

The paper seeks to explore factors that lead to poor savings and investment behaviour among Kenyans and further provide innovative solutions to improve the rate of saving and investment.

One of the recommendations fronted in the paper is to have Kenyans save at least 20 per cent of their monthly income, which is the recommended amount.

This can be done by developing short, medium and long-term savings and investment goals. Kenya's saving rate is 12 per cent, which is below the continent's 17 per cent and Uganda's and Tanzania's 20 per cent. 

“Majority of Kenyans prefer saving and investing through Saccos than retirement schemes. There is a need to have more and better incentives such as tax breaks to encourage Kenyans to have more through retirement schemes,” notes the study.

The paper also recommends increased age-based financial literacy programmes to equip Kenyans to better manage their finances and debt on the backdrop that mobile loans have affected a majority of the borrowers' saving behaviour.