Saving for tomorrow starts today. The decisions you make today affect how much you are able to save for the future. Saving as an intertemporal choice entails spending less than your endowment (the money you have at the beginning of a certain period) on consumption today in order to spend more on consumption tomorrow.
The topic of saving is one that has been reiterated over the years. It is always advisable to save now because no one knows what the future holds. This doesn’t mean that people only save because they expect a bleak future. People usually save to fulfil their needs, wants, desires and also, they save for retirement. There are various means of saving. These days, the act of saving is not just putting your money into a savings account and receiving a small amount of interest per month. People also venture into several investment opportunities that yield a higher return than a savings account. As of recent, one of the most popular investment opportunities is mutual funds.
For those in the working age group of the population, saving should be paramount in their current financial decision-making process. This is because they are not dependents but are on their way to becoming dependents once more after retirement. Everyone wishes or hopes to maintain about the same standard of living they are accustomed to even after retirement. The only way to do so is to avoid wastage and save.
The retirement age in Nigeria is between 60 and 70 years, depending on where you work. Thankfully, the federal government has provided a way in which individuals can save towards a comfortable retirement. This is through the Pension Reform Act of 2014.
According to an explanatory memorandum of The Pension Reform Act of 2014 by the National Pension Commission, repealed The Pension Reform Act of 2004. The new Act continues to provide a uniform contributory pension scheme and allows employees in an organisation with 15 or more employees, also organisations with less than 3 employees as well as self-employed people to participate in the scheme.
Under this contributory scheme, the employee contributes a minimum of 8 percent of his/her monthly salary to his/her Retirement Savings Account (RSA) while his/her employer contributes a minimum of 10 percent of the same sum to the employee’s RSA. This account is maintained with any Pension Fund Administrator (PFA).
The PFA then invests all the contributions in the RSA on investments that are safe, yield fair returns and are in accordance to the regulations set by The National Pension Commission or “The Commission” for short.
According to the memorandum, if an employee voluntarily retires or is disengaged from his/her job before the age of 50 and the employee is not able to secure another employment within four months of his/her disengagement, the employee may make withdrawals from his/her RSA with the approval of The Commission. However, the employee cannot withdraw an amount of money exceeding 25 percent of the total amount credited to his/her RSA.
The favourable aspect of new Act is that it forces people in a way to save for their future. The Act will help enable an organised system of keeping pension funds as well as enable those that work in the public and private sector receive their retirement benefits when due.
Other than this, there are additional benefits to saving. One of such is that saving provides you with a sense of financial security. It is not uncommon for a person to face unexpected expenses or situations at some point in life. Having some form of saving eases the burden and stress brought about by such expenses or situations. This is because your savings will act as a safety net to support you until you are able to resolve the situation.
Saving also allows one to be financially independent in the future. It is always good to be independent and not have to rely on anyone financially. If you are financially independent, you get to decide how and when to spend your money without the scrutiny of an outside party. You will also not have to ask for assistance when a financial challenge arises.
One might wonder how those living in poverty will save today in order to enjoy tomorrow, seeing as how they barely earn enough money today to cover their immediate expenses. The good news is that the act of saving is not income sensitive but rather entails sacrifice. Anyone can save. However, the way people save are different. The way those living in poverty save will be different from the way middle income and high-income earners save.
In the book titled, “Poor Economics; A Radical Rethink of the Way to Fight Global Poverty” by Abhijit Banerjee and Esther Duflo, one can see that the poor have unique and clever ways of saving. “the poor can save through saving clubs in which members help each other achieve their saving goals and these clubs can grant loans to members from the pool of savings generated,” a chapter stated.
According the book, the poor can save through ROSCAs, which are Rotating Savings and Credit Associations. Members of a ROSCA meet regularly and all contribute the same amount at every meeting. Then on a rotating basis, one member gets the whole savings gathered. ROSCA is common in African countries. An example in Nigeria is Esusu also referred to as Ajo or Adashe. The Esusu model of saving can be in the form of thrift saving in which a collector goes around a specific area and collects money from members – mainly market women, artisans and other low-income people.
The collector takes a fraction of the money contributed for services rendered and the funds are accessed by the saver on the pre-agreed date set with the collector. This is the older version of the Esusu model.
On the other hand, the refined Esusu model is more in line with the ROSCA definition in which a group of people come together and agree on a certain amount to be contributed by each member. Then each member gets the accumulated funds on a rotating basis, which is like an interest free loan.
Everyone can partake in some form of saving irrespective of your income status. All you need is sheer will, determination and information about the various saving opportunities available. There is a possibility that you will face some risks depending on your method of saving but that should not discourage you from saving.
Don’t put your hopes on family members or potential welfare programs to take care of your expenses now and after retirement. As is commonly said, a word is enough for the wise. Start saving today!
ZALUM ONYECHI
