There are those who can take a pill without water, some can’t; those who wring their tea-bag, others, just can’t stand it. As with many things of life, there is a choice; perhaps, not so with financial saving. Everyone needs spare funds. It is a very important part of our lives and probably how your friends and colleagues can afford stuff, even though they don’t earn more than you do.
Saving involves putting money aside for future use so it’s easy to access at almost no risk. Careful, it can look, even smell like an investment, yet it’s different. To understand saving, think of plying the outer lane of a multi-lane highway. It’s relatively slow and steady, and may not get you to your destination (saving goal) as quick as the fast inner “investment” lane. Worldwide, the small amount of interest on savings does not make it an attractive option. It may not be sufficient, but very necessary. Usually with enough saved, one can begin investing to accelerate wealth. Lately, there has been a race to the bottom, with some advanced economies experiencing near zero and negative interest rates. This means savers would end up paying their financial institutions to save their money. Strange, right! It’s not like that everywhere. Over the period, Ghana’s financial institutions have posted significantly higher nominal interest rates.
If the basic principle behind saving is to ensure there isn’t a future where one has consumed everything one has, then saving is for everyone, whether rich or poor. Abhijit Banerjee, a co-winner of the 2019 Nobel Prize in Economic Sciences argues: “The fact that I’m poor should not per se, say anything about whether I should save or not, because saving is about trading off consumption today with consumption tomorrow. That same tradeoff exists whether you are poor or rich. If I am poor, I still have tomorrow and if I have tomorrow, then I should still save”.
A savings account is probably the first formal step for most savers. Financial institutions take the savings of depositors and record them as time deposits in their savings account since the depositor intends to keep the money there for some time. That’s different from demand deposits or current accounts, customers can call on at any time. Nowadays, there are no hard and fast rules. Hybrid accounts combine the best of both, apart from specialised savings products available on the market. Innovations such as the Village Savings and Loans Association (VSLA) is employed by development organisations to promote the savings culture of grassroots communities. In Ghana, the concept of “susu” (small-small saving) has somewhat evolved into today’s microfinance sub-sector. Cooperative Credit Unions also provide “boutique” saving and loan services to members with a common bond based on living and working relationships. There are also commitment savings schemes tied to a specific customer savings goal, either a future date or amount of money before withdrawing funds.
A reason to save?
In a cash economy, savings will almost always begin from the home, with notes and coins in a susu box (piggy bank) or some sort of safe. Nowadays, mobile money savings is catching on, partly because it provides ready access to funds during emergencies. It is classified as a savings tool, so the mobile money operators are obligated to pay interest to their customers, based on the Central Bank’s payment schedule.
Regular saving requires a budget and a goal. It helps to have a reason, say fear, the thought of retirement or maybe, future reward, like desiring a new computer. The latter can be short-term saving to address an imminent need. Truth is, again, there are no hard and fast rules. Buying a computer can equally be the result of long-term saving, lasting several years.
The benefits go beyond savers and their dependents. By saving with a financial institution, say a bank or credit union, one is supporting them to serve the community and the nation. Our savings serve as credit for the government, businesses and individuals, among others.
Developing a saving culture
Sub-Saharan Africa has the lowest savings rate on the continent. The World Bank’s Global Findex Database reports that Ghana’s 2018 domestic savings (gross) as a percentage of GDP was 19 per cent. Compare that to China’s 46.6 per cent and Singapore’s 54.5 per cent. China’s savings rate is one of the world’s highest; a culture which has partly supported national investments and lifted households and the economy out of poverty.
Admittedly, Ghana’s financial system is rising from a difficult patch. In response, there has been a raft of measures to rebuild confidence in the nation’s banking and financial system and encourage household and commercial saving. Measures such as Ghana’s Deposit Protection Scheme secures the savings of depositors, together with other controls by the Central Bank. They are designed to reinforce the guardrails that border the “savings lane” of the economy; hopefully, there are no more “accidents” going forward.
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