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Savings enable households to balance consumption in the face of uneven income flows

Sanderson Abel
Savings are fundamental to sustainable economic development. They are the most frequent source of funding for micro-enterprise start-up and expansion.
Savings enable households to balance consumption in the face of uneven income flows, to accumulate assets for the future, to invest in education, and to better prepare for emergencies.

Despite the importance of savings, the majority of potential savers continue to shun the financial institutions or fail to develop the habit of depositing their savings into the financial sector.

Savings mobilisation refers to creating safe and sound institutions where savers can place their deposits with the expectation that they will receive the full value of their funds, plus a real return upon withdrawal.

It means developing appropriate products to satisfy the local demand for voluntary savings services and marketing those products to savers of varying income levels.

Simply put, savings mobilisation is capturing voluntary savings deposits, protecting them, managing them, and using them to fund loan portfolios.

Savings mobilisation is a contract between parties: the institution receiving the savings and the individual placing them in that institution.

For that reason, savings services need to operate within an established legal framework that identifies which institutions, under which criteria are able to receive savings from members or from the public.

The legal framework should also identify what recourse savers have to recover their savings from institutions in times of crisis.

The members should be well acquitted with how the whole system operates and in case of default what they need to do.

Savings mobilisation depends on marketing. Savers can only deposit their funds if they are aware of the services available to them and the fall back mechanism in case of a default by the institution taking aboard their savings.

Savings institutions use a combination of sales, cross-selling, media advertising, point-of-sale advertising, direct marketing, and promotions to attract savers.

The primary objectives of marketing activities in a savings institution are basically to identify and attract the net savers in the local market and improve the competitiveness of services.

This brings in the concept of financial education because marketing to an ignorant people does not bring results hence the need for the various financial players to be involved in rolling out financial education.

Financial education is important for savings mobilisation because the clients should be aware of the advantages offered through savings, characteristics of the products, fall back mechanisms in a case of crisis like the collapse of the financial institutions.

The specific objectives of the financial education component should range from improved awareness, confidence, knowledge and understanding of consumers and investors on financial issues to making savvier financial decisions. They can also involve more tailored priorities including reaching out to specific and potentially vulnerable segments of the population, as well as addressing identified policy priorities.

An increasing amount of attention and resources is being spent on financial education by governments and public authorities worldwide.

To avoid the case of duplication of resources, the establishment of co-ordinated and tailored strategies at national level has been widely considered to be one of the best means to achieve financial literacy.

These would include in our case banks, insurance companies, pension funds, micro-finance institutions, Ministry of Finance, Reserve Bank of Zimbabwe and NGOs doing similar work.

This would ensure there is no duplication of resources and development of a uniform curricula as part of the national project on financial education.

What needs to be done is to ensure that such national endeavours are a success through removing potential barriers that have been identified in other jurisdiction, notably limited long-term commitment from stakeholders, difficult co-operation between them, competing interests and mandates, lack of financial and in-kind resources and other implementation issues.

These can be managed through concerted effort of all stakeholders and the buy in of the regulators of the various institutions.

Given the array of potential players in the financial sector outlined above in the Zimbabwean case, it reflects the real complexity of the financial landscape. The increasing complexity of our financial system makes it clear that strengthening the financial knowledge and skills of the people is critical to the future success and financial stability of our country.

Just like reading and writing, financial education impacts the well-being of every citizen, as well as the economic and social fabric of our communities.

If financial education is not rolled out to the current generation, the future of the financial system becomes uncertain with the success rate and efficacy of new financial product development being compromised.

Financial illiteracy limits the scope of financial sector development in the country as most new products end up without takers hence increasing their failure rate and profitability.

The financial education programme should be able to demonstrate the advantages of savings and explain the costs incurred in the lack of saving and money management practices.

Further, the education should suggest how the populace can implement savings decisions and how to take steps to start saving and use banks and other financial market players in the country.

• Sanderson Abel is an economist. He writes in his capacity as senior economist for the Bankers Association of Zimbabwe. He can be contacted on [email protected] or on 04-744686, 0772463008