How the state of our economy affects your personal finance

Sometimes, as a Kenyan living and working here, there is a tendency to bury your head in the sand when it comes to anything to do with our economy. You lower the volume to the news or turn it off completely.

‘It’s just too depressing,’ you tell yourself. ‘Why bother, anyway?’

Here in Kenya, the state of our economy is closely linked to the noise of our politics – you cannot talk about one without going into details about the other. So, if you’re not interested in politics, then you’ll find yourself turning away from the state of our economy.

And yet, you can’t. Do you know why? I’ll tell you why. Because the health of your personal finances is impacted by the state – and health – of our national economy: Greatly, directly and without choice.

Political decisions have economic consequences whose ripple effects end up showing in your personal finances.

It just may happen that you’re doing everything with your money right: you are working hard at your job and/or business, putting in your heart and soul to earn some decent money. You budget for each income stream, you save for a specific purpose and invest for your long-term plans.

You are laying low in your corner minding your own business, but the state of our economy charges through like a raging bull and undoes all the hard work you’ve put into doing your money right.

There are many economic factors (micro and macro factors) that have a direct and great impact on your personal finances, today I want to talk about just two: inflation and the dollar exchange rate.

The rates are up on the CBK website, that’s what I have used for this story.

Inflation

Inflation is a macroeconomic factor. Some smart economics measure it using some smart complex metrics, it all boils down to a percentage that’s measured by the month and by the year.

Inflation hits your personal finances directly from the things you buy every day to survive in this country: Food, shelter and clothing. A rising inflation shows itself in the rising cost of living and the dwindling purchasing power of your money.

You used to spend Sh15,000 on your monthly household shopping last month, now you must spend Sh20,000 for the same exact items.

The annual inflation rate in January 2023 was 8.98 per cent. In February 2023, it was 9.23 per cent. In February 2022, 5.08 per cent.

Take a minute to run through those numbers again, and think about what it means for your personal finances.

Dollar exchange rate

Exchange rates are another important macroeconomic factor. Some smart economics from countries in the First World measure it using some complex global metrics, it all boils down to how much each local currency in the world is trading for this global currency.

I hear you saying, ‘But I’m not paid in US dollars, nor do I run a bank account in USD. I’m also not in the import business. How will the dollar rate affect me as a mwananchi?’

There are several ways the dollar exchange rate will directly affect you but the most telling is in the loans our government borrows from The World Bank etc. to keep the lights in this country on.

We borrow in USD and pay back using some of the taxes collected in Kenya shillings from you and I.

At the time of paying back, the Government converts the money collected to USD using the conversion rate at the date of repayment. Our lenders don’t care about the conversion rate – they just want their money paid back in full and on time.

On Monday April 17, 2023, the dollar rate was Sh134. On April 17, 2022, it was at Sh115 and on April 17, 2021, it was at Sh107.

Each time the rate worsens, the loans become more expensive. Our Government hunts for punitive ways of collecting more money from you and me, to cover this worsening.

For example, the excise duty of moving money from your bank account to M-Pesa. The unit cost of electricity tokens. The cost of fuel...

My goodness. It really is depressing, isn’t it?

Florence Bett-Kinyatti is a certified accountant and former financial auditor