Meet Paul. Paul is a 28-year old communications officer at one of Rwanda’s respected insurance companies. At the age of 23, Paul was lucky to land a job less than six months after graduation.
Paul’s monthly net salary is Rwf 400, 000 – considered to be above the national average salary in Rwanda.
But there is one problem. When you ask Paul what he has done with his Rwf 400k in the last five years, almost immediately, Paul withdraws from the conversation and warns you to mind your business, after all, it’s his money and he owes no one an explanation.
Fair comment, if you ask me; after all, Paul is the one who wakes up at 6am, five days in a week. Therefore, how he spends his money is entirely his business, right? Wrong! Before I explain why, let’s both take a walk in Paul’s shoes.
Before Paul landed his job, the only money he called his own had been given to him by his parents by way of allowance, from time to time. Therefore, Paul was new in the world of income; money received on a regular basis for work or through investments.
So, after receiving his first monthly wage, Paul did what most young adults would do; he bought new clothes, shoes, paid for a few meals for his friends, bought his girlfriend a few presents, and on several occasions, insisted on buying a few rounds of drinks for his friends at a popular hotspot in Kigali.
When the second, third, and tenth month’s salary arrived, Paul was all too happy to repeat the cycle.
Today, at the age of 28, Paul’s spending habits have not changed, and in fact, he has added to expenses. You see, after noticing that most of his friends were driving, Paul thought it necessary to do the same - so he took out a bank loan and purchased a car.
Now, on top of his usual expenses, a hefty chunk of his income goes into servicing the car loan, to pay for insurance, maintenance, and fuel. Generally speaking, Paul is content with his current choices; he has a job, has a car, eats out when he wants to, and can afford a drink from time to time.
Noteworthy is that Paul still lives with his parents, and lucky he pays no rent. Well, he couldn’t afford to because all his money is spent in 30 days.
However, looking at Paul’s financial decision, can we safely assume that his financial future is safe? What would happen if he lost his job?
What about when Paul is too old to live with his parents or after he starts a family – can he afford to rent or buy a house?
In Rwanda, and in many other places, Paul’s scenario is the real life for many young people. A lot of research indicates that an awful lot of young people are increasingly living life one day at a time, and thereby spending all that is earned.
For instance, the National Financial Education Strategy published in 2013 by the Ministry of Finance and Economic Planning indicates that, according to a FinCap survey carried out in 2012, less than half of Rwandans can give correct answers to all four numeracy questions which test addition, subtraction, multiplication, and division.
The same survey indicates that even though 90 percent of Rwandans say that they budget carefully, only 39 percent actually do it – this suggests a disconnect between knowhow and application.
Many will agree that lack of adequate financial literacy among young people to prepare for life events such as entering the world of work, and taking charge of managing their wages, can all lead to poor financial decisions that can have adverse effects on the financial health of many young people and society in general.
It is true that a university degree goes a long way to bridge this gap, but it is by no means adequate to deal with the increasingly complicated world of money matters.
You see, out there are smarter people working day and night to find ways to make you spend the hard earned cash.
And some will stop at nothing to lure you into poor financial decisions. Others benefit from your lack of sound financial knowledge.
In addition, more and more, the burden of making sensible financial decisions is resting on the shoulders of young people. For instance, unlike in the past when on average wages outpaced living costs, today, and in much of the future, living costs are rising faster than wages.
Likewise, as living standards continue to improve, so is life expectancy. This means that in order for young people to guarantee a decent lifestyle between now and retirement age, more funds need to be accumulated to cover living expenses over a longer time.
Otherwise, our generation will simply become a burden to our families, society, and the government.
Similarly, young people should not be fooled by the idea that just because they are paying into their social security fund over their working career, a good life after retirement is guaranteed.
Not necessarily. This is because, unlike in the past when social security funds used to be seen as a major source of income during retirement, at present, most retirement funds serve more like a safety net that will provide enough for survival and not necessarily for enjoyment.
By and large, more is being done to improve financial literacy skills among young people. The 2013 National Financial Education Strategy is a good example.
Another good example was the 21st Youth Forum in 2014 organised by Imbuto Foundation, which focused on financial fitness in order to shape a secure financial future among young people.
Overall, however, gaps exist and need to be filled. At home, parents can play their roles by paying more attention to how their children spend money. This will allow them to notice poor financial habits and correct them at an early stage.
In other places tougher policies are being considered. For instance, some countries are considering establishing mandatory saving accounts for young adults. Whether this will succeed remains to be seen.
But, whichever way we decide to proceed, we must remember that money is a link between the present and the future. How we manage it will determine how comfortable our lives will become.
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