Many years ago, the earnings born of the labor of a young man or woman’s toil went into supporting their families and other rather heavy responsibilities. They paid school fees for their siblings, put food on the table, kept the eviction notice away and secured their own financial future.
While the same maybe still be true for young breadwinners, undoubtedly times have changed and standards of living improved. It is therefore safe to say that young adults today have different spending priorities compared to previous generations.
What do young adults these days spend their money on? Do they save, do they invest or are they a spendthrift generation?
Majority of the young people who shared their financial habits with Sunday times explained that they made too little to save and while others shared various motives and dreams they aspire to achieve with their savings.
Andrew Manzi, a 24 year old writer explains that about 30 percent of his earnings go to his church.
“10% of my salary goes into tithe and about 20% into offertory in the course of the month. Then the rest is divided between other necessities like food, clothing and transport,” he said.
Sandrine Umuhoza a 21 year old receptionist on the other hand explains that she saves 80% of her salary as she intends to start a business in the food industry in the next couple of years.
“I only spend 20% of my salary on shopping and other domestic demands. It takes a lot of financial discipline not to spend my entire salary but having a clear vision of what I want to achieve helps me stay on track,” she explains.
Another young man who preferred to be identified solely as JB says he spends majority of his earnings on leisure.
“I am an IT/Tech analyst. I do save, but I have not yet made up my mind regarding long term investments. Currently I am saving to buy a car to ease my transport. You are young only once. It’s only fair to enjoy the fruits of your hard work. I am just 25 and I am working hard to secure my future financially but when I have time, I spend a good amount having fun and relaxing,” he said.
28 year old sales lady Clare Muteteri says rent and transport claim the lion’s share of her income.
“Every month I set aside whatever I can after clearing my bills of because I intend to start my fabrics store in the near future. I prefer to accumulate assets first before I spend on liabilities but it is not easy. Rental space is ridiculously expensive but I am determined to achieve my dreams and ensuring mine and my family’s financial security,” she explains.
22 year old CEO of Rwa Business Group Ephraim Rwamwenge explains that his living expenses take a significant portion of his earnings, with food leading the charge.
“I do save sporadically. I target a minimum of 10% but if the month is a relaxed month I can even do 25%. I do encourage other young people to save. Saving for a goal always seems irrelevant when you're young, and that's because we haven't lived long enough to see the power of compounding, but do so and you'll be miles ahead of everyone else when you hit middle age,” he says.
Rwamwenge adds that the value of money is found in what it can afford you and so by all means spend what you make. However he urges that one shouldn’t spend irresponsibly to a point where they need to borrow or do so with zero savings and investments to claim to.
“Create investment funds, get a number of your friends and put aside even Rwf20,000 aside per month. It'll accumulate after a year or two, then give it to a different fund managers and they invest it on your behalf. Compounding is your biggest asset,” he explains.
Junior Sabena Mutabazi, a public policy analyst urges parents, teachers and guardians to educate young people financial choices, expenditure and saving from early on. From there they can monitor the financial behavior of young people and rectify mistakes like irresponsible spending.
“I think that we underestimate the importance of being taught or advised about savings or investments particularly as young people who may think that it is common knowledge. By the time majority of young people learn the ropes of savings, it's already too late to break the habit of spending on wants rather than needs,” he says.
“You can't completely blame young people because financial independence maybe new to them and they are overwhelmed. Simply assuming that because you have a load of cash somewhere qualifies one as a shrewd investor is a gross mistake. Step one is mastering the culture of savings. Step two is investment - to multiply the savings you've struggled to achieve. It's only when we've mastered such basics that we develop the instincts to spot a good investment,” Mutabazi adds.
Kenneth Agutamba, who is the Marketing & Public Relations Manager of Bank of Kigali, counsels young people to differentiate between saving and postponing expenditure noting that real savings involves putting a portion of income aside and literally forgetting it for a while.
“Savings are rewarded with interest as they accumulate. Overtime, when a young person eventually ‘remembers’ their savings, they will have multiplied significantly. This is why it is paramount that even parents open junior saving accounts for their children so they can take care of their future financial expenditure,” he says.
“Part of the reason why interest rates on loans are high today is because people of all ages are not saving. Banks rely on saving deposits to advance loans. Without these, banks are forced to borrow funds outside the country to lend Rwandans which is expensive. However if people young and old save more, banks will have sufficient local money to lend those in need of loans and those who save will benefit from interests on their savings. This is a win-win situation for the economy as a whole,” he adds.
Agutamba further notes that a saving culture amongst young people will go a long way towards ensuring that they benefit immensely from any investment of their choice.
“Every investor ought to contribute a given amount of personal funds into their projects. The challenge that various businesses in the country are facing lies in the fact that they borrowed 100% of their funds and hence every profit they make goes into clearing their debt. A scenario where a person can raise 80% of their capital from personal savings and borrow 20% means that they get to keep majority of the profits,” he explains.
With clear illustrations that financial times and choices have indeed changed in comparison with past and present generations, it’s imperative that young people understand that the need for financial intelligence and discipline have remained constant. The sooner they become knowledgeable on how best to secure their money and assets, the sooner the economy benefits and the country develops as a whole.