What banks can do to spur savings culture -Part One

This is what you must understand and accept if you want to develop the habit of saving. Here are some of the excuses we all have heard or use for not starting saving today: my salary is too little to save, my children are still in school, let me pay off my mortgage and debt first, let me build my first home first, and many more. Personally, I believe as a society we are lagging on savings which is very critical to our financial well-being.

If you take a moment and look at our society today, you will find out that we have a spending culture; according to World Bank national accounts data, and OECD National Accounts, Tanzania's consumption rate is 65.7% of GDP in 2021. The truth should be told, the majority of Tanzanians’ incomes are low and the unemployment rate is relatively high but still developing a saving culture is critical to our personal development and our country as well. As financial intermediaries, banks have a huge role to play in establishing a savings culture in our society. This week I will look into what actions banks can do to spur savings in our culture.

So why should we (as a society) have a culture of saving?

      Savings empowers individuals by shifting the saver’s perception of his/her situation from a day-to-day struggle to survive (I.e., short-term) to a long-term view of survival based on the savings cushion.

      It is estimated that Tanzania’s annual infrastructure gap is between $5-7B billion and that gap hinders our development. One of the major reasons we have this deficiency in our infrastructure budget is because of the limited domestic resources available in our country. With a savings culture, our high levels of savings in our society will increase the number of domestic resources available for our investment projects and decrease the need for the government to seek foreign funds through loans to cover domestic investment.

      According to the World Bank collection of development indicators, compiled from officially recognized sources, our annual national gross savings rate is 34.31% in 2020. It is important to note that countries with low internal savings must borrow from abroad which results in a debt service burden. Currently, our country’s appetite for borrowing is at an alarming rate which was shown in the Bank of Tanzania (BOT) Monthly Economic Review (MER) report of March 2023. The report stated that our external debt rose to $28.93B at the end of February 2023. This was an increase of 2% and 30% from the previous year and two (2) years ago respectively. The savings culture will increase our national level of savings hence reducing the borrowing appetite.

The reasons stated above clearly underline the importance of a savings culture in one’s confidence and the country’s growth. So what can the banks do to spur a savings culture in our country?

      Savings Awareness Campaign - One of the actions banks can take to improve the savings culture in our society is to conduct outreach to schools and communities to teach them the importance of savings and financial literacy. By doing this, the banks will bring more people, especially children and youth into the formal banking sector which will install the culture of savings from an early age. Once young people understand how critical saving is, it will be easier for them to educate others. Therefore, banks should collaborate with schools to create outreach programs that encourage savings.

Next week I will share two more actions that banks can take to spur a savings culture in our society.

Kelvin Mkwawa, MBA is a Seasoned Banker. He can be reached through Email address: Kelvin.e.mkwawa@gmail.com