Analysis: NCHIMUNYA MUVWENDE
EVERY October 31, Zambia joins the rest of the world in celebrating World Saving Day. However, this day is less important for most Zambians that do not value saving or do not understand why they should save when they don’t earn enough.
The importance of saving both at national and personal level cannot be overemphasised. A businessperson without borrowed capital will be safe if they have saved enough funds. A nation will not fall into too much debt if enough money can be saved at national level. This article focuses on the important role saving can play in the development of Zambia if due attention is given.
Zambia has a youthful population of about 60 percent and this implies that whatever affects the nation, affects the youths the most. One common saying is that the youths are the future leaders. Young minds are full of new ideas, and so creating a future-oriented mind-set in young people is the first step in securing a better Zambia. Young people tend to be very innovative, but innovation without finance may be equivalent to a dream that will never come true, hence the need to talk about a way to grow finances both at individual and national level.
Zambia is faced with high unemployment levels and the problem stems from not having sufficient companies and activities that will provide employment to people seeking employment. The suggested remedy to unemployment has been the promotion of entrepreneurship. Despite the important role played by entrepreneurship in creating employment and growing the GDP, finances are needed because to make money, you need money.
The question that comes to my mind is, where will a young person like me who is not employed and just have ideas for a potential business get the capital to actualise a business plan? Will I be able to get money from the bank, other financial institutions, family or where will I get the money?
One thing that can be emphasised is that financial institutions are not charity organisations to lend or give out money freely or at non-profitable conditions. Usually, the conditions are unattainable for young business people and hence tend to discourage youths who have good ideas.
Taking the issue of collateral as an example, supposing I want to start a business that requires at least K20,000, no financial institution will give me such money without me providing collateral. The question of interest here is, were will a young person like me find such collateral that financial institutions need?
Let’s suppose I succeed in securing that loan, the bank will require me to pay an interest rate of between 30-40 percent of the amount borrowed but such an interest is quite high. If I acquired a K20,000 loan, it means I must pay back not less than K26,000. Remember that I am in business to make profit but then to be profitable, I must have gross profit margin of more than 40 percent so that I remain with something after I repay the loan.
But with the diverse challenges facing Zambian businesses, which business will be that profitable? If I fail to meet the needed amount, I still have to pay back the bank in one way or another. Whichever way you put it, having to borrow is a huge risk, hence the need for a better alternative of saving.
But if people are taught the importance of saving, especially from a tender age, financial challenges will provide less problems for the future generation. The main problem that people have is that they feel that they can only save when they have excess money, but economists will argue to say money (resources) is always scarce. Saving from any little amount should always come first before consumption.
Consumption = Income – saving. Not saving = Income – consumption
The Finscope survey of 2009 reports that only 17.5 percent of Zambians were saving through financial institutions. This implies that more than 80 percent do not save and this needs to change. My undergraduate dissertation aimed at finding the determinants of gross domestic saving in Zambia and some of the findings were that saving is usually low due to unfavourable conditions such as high inflation and interest rates, which discourage saving.
Zambia has relied more on foreign aid and debt to finance developmental projects, but debt and aid usually make the recipient a slave of the giver, hence the need to grow our own finances. To deal with this, the government and others must promote saving, starting from young people.
I suggest distributing piggy banks (money storage toys) to all school-going children to enhance saving mind-set. Have more campaigns of saving as well as encourage parents to encourage their children to bank for what they need by giving money in instalments. The use of own capital helps reduce dependency syndrome.
Lastly, the more we talk about saving, the more people will be inclined towards saving and hence secure a better future for Zambia. Remember that every ngwee counts, be wise and save!
The author is an economics student at the University of Zambia.