How Covid-19 changed our spending habits
Financial education is not one of the first things parents teach their children, so by the time young people begin earning, they have to wade through the maze to eventually figure things out on their own.
A report by the international association for mobile network operators, GSMA, shows that 36 percent of Kenyans accessed mobile loans in 2021. The Central Bank of Kenya reported that as at July 2021, 8.3 percent of Kenyans borrowed money from unregulated digital lenders.
Challenges of inflation, unemployment and the pandemic worsened the situation and increased borrowing.
Certified financial planner, Christine Gathuini, cautions that the lack of financial literacy drives up debt.
“Taking up debt that is not for assets will become unaffordable because you have not done due diligence. It also means you can be easily scammed by too good to be true deals and finally, you will not be able to adequately plan for future financial security,” she says.
Her caution comes on the back of trends she has observed such as people quickly taking up debt without analysing how they’ll repay, others falling for pyramid schemes, not saving for emergency, choosing not to invest their money, and lost opportunities to act on good investments and business ideas that emerge in the current economic climate.
This week, we speak to four young people to get a perspective on how the current financial crisis is affecting their disposable income and what alternatives they have had to jump onto to survive.
Eric Mulera, 29, entrepreneur running a cyber café in Nairobi.
Financial literacy became important for Eric when he realised that a friend who had a similar salary was doing better than him.
“I realised he had a side business that was generating extra income. He sold fast foods in the evenings and weekends by the roadside. This was near a college where the market was readily available,” he says.
His friend shared two nuggets. One, “You must have savings regardless of how much you are earning.” The second was, “You should never fear disappointing someone (by not giving them money) whenever you have a target in your savings plan.” He then introduced Eric to Sacco.
Before the pandemic, everything was easier for Eric. Together with his working siblings, Eric was able to support family projects and share responsibilities where necessary.
Then everything changed suddenly and his income reduced tremendously since he had to change jobs. Things worsened when inflation set in.
“Thank God I had started saving. The savings cushioned me,” says the businessman.
With the savings getting depleted, he resorted to online academic writing for extra income that helped him to stay afloat in the tough economic times.
He also had to reduce his expenditure. The projects he was doing with his siblings, like building a new house for his parents, have stalled until further notice as they focus only on the basic needs.
“I used to regularly send my siblings money, especially the young ones. I have reduced the amount and frequency. They get heartbroken whenever I am not able to send them upkeep money because they are children and look up to me,” he says.
Eric advises young people going through similar financial crises to live within their budget by avoiding unnecessary spending. The second option is to get a loan or use savings to start a business that needs a low initial capital and earn extra income.
Besides running his cyber café business, Eric has also invested in agriculture and plans to save and invest more in the future.
“The amount I save now varies every time, but at least I do save. I also have a pension plan in which I remit Sh500 every month since I don’t have a regular job yet,” Eric offers.
Patricia Rima, 32, sales and marketing executive , Nairobi.
Patricia has never had formal financial management training. The little she knows about money is through personal research, reading books, and taking courses online.
She lived a day at a time, which worked for her, until the pandemic happened and it dawned on her that she could easily go without income.
She had not been keeping tabs of her spending habits until one time when it became necessary to get a financial statement.
“I had been paying back the Higher Education Loans Board funds for a long time but the amount seemed not to reduce. I shared this with a friend who advised me to get a statement. It turned out that I had been overbilled by around Sh100,000. Luckily I had not paid. Had I not done the audit, I would have overpaid bigtime. This made me realise that I am probably being overbilled for other things too,” she says.
Like many other people around the globe, her income was reduced due to pandemic-related challenges, and she had to cut down on her expenditure.
“After the pay cut, I had to cut down on luxuries I could afford prior. I stopped using my car, and reduced the number of times we eat meat in my house. I had to re-evaluate everything because I had a lean budget to work with,” she says.
When the pandemic hit, Patricia was in the process of enrolling for her master’s degree, but she could no longer afford it.
Despite the challenges presented by shrinking finances, she realised she had a lot of unnecessary expenditure which she could do without. When shopping, she doesn’t care about brand loyalty anymore. She goes with price tags and just picks the cheapest.
“I also realised I don’t have to go out every weekend. I make use of board games and other ways to spend my weekends in ways that don’t involve me spending money,” she says, “habits I picked from the financial crunch weren’t so bad. I also learned how to budget in a more deliberate manner and supplement my income.”
Another aspect that suffered the pandemic was her relationships. She could no longer meet up with all her social contract obligations such as paying for baby showers or sending upkeep money to friends or family.
“People did not understand because they did not believe I did not have money, they thought I just did not want to give. I had to make difficult decisions. I also realised there are many things we do out of pressure,” she says.
As the pandemic wore on, she found herself eating into her savings. She realised how dangerous it is to put all eggs in one basket. She started thinking about investments as a fallback.
“I have a child and I saw the difference between having and not having can happen overnight. I need to set up an emergency fund for the child and I, and a passive source of income. So that when I am not able to earn, I can still survive,” she says.
Patricia’s biggest aspiration now is financial freedom – not worrying about money and being able to do the things she likes.
Barasa Oliver, 28, medical laboratory officer.
When he was growing up in a village somewhere in Bungoma County, Barasa says financial literacy is not something he had access to because money belonged to adults.
“It was until I got to the university that I had to manage money of any kind. I also got access to financial management lessons through the Young Africa Leaders Initiative(Yali). I built this up with online courses,” he says.
However, not even this training adequately prepared him for financial crises that the globe has been going through since the onset of the Covid-19 pandemic.
“When the pandemic hit, I had just started a new job. My background is in medical laboratory sciences and so I work in the health sector. I was excited because the organisation was a dream come true. However, I had not completed my probation when Covid-19 hit. The new recruits, me included, were sent home on unpaid leave until further notice,” he recalls.
Effectively, Barasa had joined the list of 4.64 million people in Kenya who were jobless at the end of June 2020, according to the Quarterly Labour Force Survey.
“This put me in a financial crisis because I support my family back home. I stayed indoors for almost a month without getting out,” he says.
But when you spend without earning, it’s only a matter of time before your pockets run dry. He took the first step – speaking to his family to let them understand his new status so that they can make necessary adjustments as he was about to stop supporting them completely.
Four months later, Barasa was lucky to land another job. This time, the financial wringer he had undergone had made him wiser.
“It’s important to start teaching financial literacy as early as possible. This will make conversations easier in adulthood. If I had been taught how to handle finances, and to plan for uncertainties, I would have had a fallback plan. I also learned that it is important to be authentic about my financial capacity and not try to please people. I tried to stay strong and I ended up breaking down,” he says.
Chastised by the four-month experience of joblessness, Barasa has signed up with two Saccos and is actively investing in agriculture. Besides that, he has joined what he calls a boys’ club.
The pandemic made them realise they cannot stand alone, therefore, 10 friends who went to the university together and some colleagues in the profession came together, to cushion each other on financial issues. Every month, they contribute a certain amount of money and give it to one of them to invest in a project.
“Back then, saving was not important as I was focused on helping my siblings. I was assured that I would always have money at the end of the month. But post-pandemic, the first thing I did after getting the job was becoming a member of two Saccos. I would say Covid-19 came with financial discipline. I also started doing a side hustle with the money I made because simply putting money in a bank account does not have a significant impact,” he says.
His advice to young people going through financial crises is to check their priorities.
“If you are living in a house that you feel is not sustainable, consider scaling down. I had to cut out a number of things such as hanging out with friends on a regular basis,” he says.
Ann Njoroge (Q-Tee), 30s, Radio Presenter in Nairobi.
Ann had to learn financial management the hard way, and on her own. Years ago, a good friend used to advise her to save 20 percent of her income. It never made sense because she wasn’t employed but worked between contracts that fetched “too little to save”.
“But when I got a stable job, it started making sense. My elder brother also pushed me to save and invest. “He said ‘Money doesn’t last forever. So you better save what you have now and you’ll thank me later’,” she recalls.
Just like in many other organisations, Ann was also affected by the pay cut that came as a result of the pandemic, so she had to cut down all luxuries and focus on basic needs.
“I love to travel but I had to forget about that for a while. Eating out is also something I had to let go. I loved to eat, especially in restaurants around where I work, but I started cooking more at home and it helped in saving cash,” says the presenter, adding that she also had to put her impulse buying tendencies in check in order to stick to her budget.
She also pressed pause on her saving during the pandemic. But she is slowly getting back on her feet and her saving plan is back on track.
Her fall back plan was also affected by the pandemic. As a radio presenter, hosting events would be a good side hustle.
“But that did not work so well because events were not operational during the pandemic. I love doing Reggae events. We used to have events every Thursday at Club Tribeka but it was shut down, Events were all cancelled, so it was really hard,” she says.
But financial responsibilities were a constant and she had to survive. She reduced fundings for certain projects she was doing for a while.
“I had a very open conversation with my family, and of course they understood because the pandemic affected everyone. My advise is to only contribute to projects that you can. Be open with your family, don’t kill yourself with responsibilities that you can’t handle,” she says.
