SAVING IS A CULTURE, SAVE TODAY SAVE YOUR FUTURE

First, let us examine the theory about saving/investment programs.

Economists assume that economic growth depends on uses of money.
There are various uses of money, but the major ones include:

•        Investments

It can be used to start or operate a business, i.e. it can be used to acquire both fixed and current assets as well as meeting the operating expenses in a business

• Consumption

This may range from buying household commodities, paying children fees, clothing, food and drinks, entertainment, building home etc. Some people consume all the money they earn while some leave some for saving.

•   Savings

The part of one’s income that is not consumed. It can be put aside to meet future consumption and investments.  It involves:

I)                   Voluntary saving

Savings made on some one’s will or choice e.g making bank deposits, life insurance etc.

  ii)         Involuntary

This is forced savings where one is required to save by law for instance to save for Rwanda Social Security Fund for meeting old aged needs or retirement needs.

An overview on saving, consumption and investment

i)                   Characteristics of people who prefer to consume most of their income

People who prefer to consume more of their income than to save and invest it have the following features:

•   They are very extravagant, i.e they always spend any incomes that comes their way on things they need or may not need immediately.

•     They live a luxurious way of life by buying luxury and expensive goods that they come across; some of which may not even be necessary but they just want to show off.

•       They have a low desire to save; such people rarely save and invest their income.

•      They have got no investment plans for the future since all their income is always spent as they get it.

• That income normally tend to be used for paying debts that were in cured prior to being earned

•  Whenever they earn money, they become unstable all the time with desire to go out to spend it, and will only stabilize after all the money is exhausted.

  

ii)  Characteristics of people who prefer to invest

The features of investment oriented people include:

•     They always look out for investments opportunities that may be available in their localities or elsewhere for them to invest

•  They tend to give priorities to investments and much of their income is spent on capital goods and services that will lead to further investments.

• Such people work longer hours to earn more income so that they can increase so that they can increase their savings and subsequently investment.

iii) Characteristics of people who prefer to save

People who like to save their income tend to have certain attitudes, beliefs and behavior that encourage them to save. These may include:

•      They are so keen in their spending, i.e every expenditure has to be justified in terms of necessities

•    They tend to leave simple life i.e they do not engage in spending their income on luxurious commodities   

•  They have high motivation to save and invest; they tend to give priority to saving much of their earned income. 

• They tend to look out at and take up opportunity that is available for them to save 

•  They tend to prefer fore going a lot of things at the beginning i.e at times they even go with meals with a view to save or the future.

• To have a clear picture of what saving is all about, let us highlight some importance of savings

Importance of saving

•         For transactions, i.e money is saved in order to have cash to meet the day to day transactions of personal and business needs in nature;

•       To meet future investment plans, for instance starting a business, expanding business, buying more equipment;

•      To meet for future consumption needs which may seem to be more important than the current ones e.g. paying medical bills, meeting old age needs etc.

•     To meet stated/ specific/ particular needs e.g investment plans, building a house, paying bride price, etc.

•   To store current value or surplus which can be used during scarcity periods

•   To meet certain local requirements for employees

Before we processed to another point let us first enumerate some factors affecting or determining savings. Recall that our mobilization about saving will focus on those factors as listed below.

Factors affecting or determining saving

There are a number of factors that may encourage one to save, and these may include the following:

•   Levels of one’s income

Leaving other factors constant, one cannot save if he is not earning, and the level of one’s income may determine his savings, i.e if one is position to earn enough income to sustain his needs and stay with some money for disposure, he will be encouraged to save and the reverse is true, i.e if one is earning little income one will not be in position to save part of this income.

•  Person’s confidence about the future

If one is confidence or sure of the future, he will be encouraged to save since there is hope of using his/her savings in future without any difficulties, and so his money can be put to better use, however, if one does not foresee any hope benefiting from the use of his money in the future, he may be discouraged to save. This principle can be a guideline during mobilization about saving: THE FUTURE IS FOR US, LET SAVE FOR A BRIGHT FUTURE.

Before we proceed to see sources of money, let first list some forms of savings.

Forms of savings

There are different forms in which an individual may save, they may include:

•       Cash and bank deposits

•      Near cash investments which bear interests like treasury bills, fixed deposits, etc

•   In form of assets like buildings, animals, etc

•  Land, which is traditional but high yielding form of saving

•  Valuable item like gold, jewels, art works, etc

•  Investment in business i.e starting a business so as to earn profits

• Trading in currencies, e.g buying foreign currencies with hope to benefit from gains on in the rise in its value.

•    Forced savings i.e. where one borrows money for investment and has to save so as to pay for the loan or money borrowed and it’s related interests or charges.

We cannot examine perfectly saving, if we ignore consumption and investment; similarly, we cannot convince one without arising issues concerning sources of money.

Sources of money/ income

A business may be started using money from personal saving or income, or many youth are either unemployed, low income earners or do not have personal accounts.

Secondly, trade credit/supplier’s credit, this is another source of money where youth have no cash to pay for the goods, they then obtain them on credit and use their sales to pay the suppliers but remain with profit realized on sales. Recall that A beggar has no choice.

In addition, Gifts and offers that may be from friends, relatives and well wishers. Note that Gifts and offers may not be timely as it will depend on the person giving them. They lead to dependency and unnecessary interference in one’s business.

Lastly, loans are common source of business money. Loan is either in cash or in kind that is obtained outside a business with a view of repaying at a later date with or without interest charged.

The merits of using a loan may include:

•     A loan is accompanied by external monitoring from the lenders and this may lead to effectiveness and improves efficiency in the business operations

•    It encourages hard work and discipline on the borrower’s part with a view to repay money and added interest promptly as required by the leader.

• It avails extra money to youth to supplement on the existing resources and this helps youth to accomplish their business goals and objectives.

The disadvantages of using a loan may include:

•    It is always accompanied with a high interest rate which may affect the business profitability due to increased costs, hence a failure to achieve the stated goals and objectives.

•    It is not easy to acquire a loan in a stated or required time, this is because it involves a lot of strings and steps before acquiring it and this may interfere with the business plan.

•     A loan is always accompanied by pledging a security and in case of failure to repay the loan, one may end up losing his/her property like his residential house

•  It is always accompanied by external control by the lender and this may affect the business operations as youth may be denied  a chance  of exercising his plans or implementing his decision

•  The repayment obligation like interest charged, the repayment period etc may be so tight and strict which may cause cash flow problems in the business.

•    There are a number of strings attached required before one access a loan which may hinder youth from acquiring it, for instance security pledged, the business plans, referees, etc.

Factors considered when lending or giving out a loan

•      The  nature or type of the borrower

If a person wishing to access a loan is a member or holds an account in financial institution, or if he has ever borrowed money from the very institution, it becomes easy for his/her to access a loan compared to one who is new and has never accessed a loan, this is clear in that the lender needs to cross check his credit worthiness.

•  The nature and type of the lender

Formal lending institution like banks require a lot documents or follow a lot of steps before giving out a loan compared to a sole individual or an informal institution when giving out a loan.

•    The nature of the business or project to be funded

If the business to be funded is expected to yield profits in a short period, they repayment period is stiffened and vice versa. i.e one will be required to repay with in short period possible plus a higher interest charged.

•      The amount of loan able credit

If the money to be is too much, the conditions and terms will be stiffened due to fear of making a loss is an element of failure to repay by the borrower and vice versa if it is less or little.

Procedures taken when borrowing

• Identifying the available business opportunity 
•     Carry out a market survey on the identified   business opportunity 
•    Develop a business plan for the identified business in order to determine the total funds required. The plan should show the possible sources of funds and how to get the funds’ i.e. own sources and finding gaps. 
• Identifying and approaching the possible financiers .i.e. where you expect to get funds 
• Acquire the terms and conditions for the loan as stated by the selected financiers 
•  Check through your business plan to examine the impact of the loan to be acquired to the business, i.e.  In view of the costs associated with borrowing like loan charges etc. 
• Carry out a discussion with the selected financier and try to convince him about your desire and expectations 
•  Go on and obtain the loan and use for the intended purposes and try to follow to lending terms and conditions as agreed upon by your financier.

Note that once the loan has been acquired, the borrower should ensure that:

•   The loan is properly documented especially from the commencement date 
•    Ensure that the agreed method of payment is strictly observed 
•  Try as a much as possible to repay on due date to avoid defaulting 
• Ensure that the business is properly managed so as to stand better chances of using the loan very well and benefit from it at the end 
•  Always ensure that you maintain a good relationship with your financier in order to avoid misunderstandings which may create a bad image to the business.

Requirements for accessing a loan from a lender

The requirements may vary from one lender to another, however the common requirements which relate to financial institutions may include:

• Being an account holder or members of the lending institution 
•  One must have operated the account for sometime
•   The purpose of a loan which is needed must fall under the transactions funded by the lender 
• Whether the lender has already lent to the business or not, in most cases a lender cannot give out a loan to a borrower who has not cleared the previous loan. However, today some institutions offer top up loans before the borrower clears the previous loan. 
•   The amount being borrowed must fall within the lender’s limits 
• The person in need of the loan should provide adequate and accurate information, for instance the purpose of loan needed, personal information of the borrower, etc