48 percent of Kenyans or about 9.5 million in both formal and informal employment currently feel overwhelmed or highly stressed by their financial situation. PHOTO | SHUTTERSTOCK
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Half of Kenyans financially stressed as pay shrinks 25pc
Nearly half of Kenyans are in dire financial distress amidst income stagnation and shrinking payslips since 2019 that have pushed them into a debt trap, a new survey shows.
The Financial Services Monitor by Old Mutual Group reveals that 48 percent of Kenyans or about 9.5 million in both formal and informal employment currently feel overwhelmed or highly stressed by their financial situation, with lower-income earners and women feeling more stressed.
The survey found that informal sector workers, who take home less than Sh20,000 monthly, are the most stressed, with 51 percent saying they are overwhelmed, compared to 46 percent of those earning more than Sh50,000 monthly.
An independent analysis by the Nation shows that the real value of payslips in Kenya has fallen by nearly a quarter since 2019 due to inflation, putting a strain on the spending power of formal sector workers who are also grappling with higher taxes and statutory deductions.
Annual inflation progressively rose from 5.2 percent in 2019 to 7.7 percent in 2023, averaging 6.4 percent over the five years.
Presuming that the basic pay remained unchanged, a salary of Sh30,000 in 2019 on gross terms was worth Sh22,705 at the end of 2023 after factoring in the compound inflation over the period, while the value of Sh50,000 fell to Sh37,842.
For those being paid Sh100,000 per month in 2019, the 2023 equivalent was Sh75,685, while the purchasing power of a pay packet of Sh500,000 was reduced to Sh378,423 by inflation in 2023.
This comes even as 62 percent of Kenyans interviewed say their incomes have reduced compared to their pre-Covid earnings and 29 percent continue to earn the same amount, despite the high inflation and currency depreciation that have recently eroded consumer purchasing power in the country.
“This means that the majority of these consumers currently have less money in their pockets than they did prior to being impacted by the pandemic,” says the survey published on Monday.
Based on the survey, several Kenyans fall in the ‘sandwich generation,’ meaning that they have both their children and elderly parents relying on them financially, increasing the economic burden on the working class and heightening the stress.
Currently, about 75 percent have children dependents, while 58 percent have elders relying on them for financial support. Generally, about 46 percent of Kenyan adults are currently taking care of both their children and their parents, the survey shows.
“The sandwich generation is growing because of two trends; first, life expectancy has moved up, so people are looking after their parents long into their own retirement. Secondly, the children are not getting independent fast enough,” said Nanzala Mwaura, chief growth officer at research firm Ipsos.
Data from the Kenya National Bureau of Statistics (KNBS) on changes in real wages –which incorporates inflation and salary increases offered to formal sector workers— was in the negative since 2020, as cost of living ate into the increments.
This indicates that employers were unable to give workers pay increases to cover the rising cost of living, reflecting the difficult economic conditions that were largely caused by global shocks such as the Covid-19 pandemic.
In the five-year period, the cost of essential household goods and utilities have gone up significantly, as per data published by the KNBS, deepening the pain for workers whose value of wages has been eroded by the same inflation.
In the food basket, the price of a kilogramme of maize flour more than doubled from Sh48 to Sh98 between 2019 and 2023, while the price of a 400-gramme loaf of bread rose to Sh65 from Sh48.41 in the period.
The cost of a kilogramme of beef rose from Sh426.66 to Sh603.51 on average over the five years, a litre of milk from Sh49.73 to Sh60, and a kilogramme of cooking fat from Sh117.32 to Sh200. Energy prices have also gone up significantly, with the electricity bill for a household consuming 200 kilowatt hours per month rising to Sh6,687 from Sh4,647 in 2019.
For motorists, a litre of super petrol is currently retailing at Sh207, compared to Sh109.50 at the end of 2019, and that of diesel at Sh196.47, up from Sh101.78 five years ago.
Households using kerosene as an energy source are paying Sh194.23 per litre, up from Sh102.31 in 2019.
Despite the effect of inflation on earnings, the formal sector has been targeted by the government for new or enhanced deductions, including the housing levy and contributions to the planned universal health coverage.
High earners have also been slapped with higher income tax rates on income above Sh500,000, as the government seeks to raise more tax revenue to fill its wide budget hole amid concerns about the high cost of servicing public debt.
The housing levy has been charged at 1.5 percent of gross pay, matched by the employer, although its collection has been suspended by the courts where there is an ongoing case on the legality of the levy.
The financial stress could be fuelling a significant health crisis in the country, as over two-thirds of those feeling highly or overwhelmingly stressed by their financial situation say the stress is taking a toll on their physical and mental health, yet many are not covered by any insurance scheme.
According to the research, the financial stress is pushing many Kenyans deeper into debt, reshaping priorities, and several are not planning adequately for retirement and emergencies.
Over the last year, at least 41 percent of Kenyans had to borrow from friends and family to make ends meet, while about 38 percent had to dip into their savings to pay their bills.
While the majority (40 percent) of those taking loans from different sources are doing so to stock or equip their businesses, about 38 percent are borrowing to meet everyday needs and 33 percent do it to meet unexpected expenses like school fees, medical needs, and household repairs.
At the same time, paying debt is now the third most important financial priority for Kenyans, coming after job or income security and cutting expenses. According to the survey, about 17 percent of indebted Kenyans are struggling to service their loans, and some are now borrowing to repay debt.
