By Ishita Ghosh, Research Lead on FinLit Project, Grameen Foundation
Out in the field when we ask people what the biggest impediment to saving is, the common refrain is that they don’t make enough money to save. It remains a popular perception that only the rich can afford to put money aside regularly and watch their wealth grow. Smaller denomination currency is more often than not discarded as being of too small a value to ever add up to anything significant. And this chain of thought often permeates the more developed countries as well – I remember donating all my loose change to a charity called Two cents of Hope based out of the United States. This charity would go around asking people to donate their coins (cents, nickels, dimes), something that most people would be more than happy to give away to charity, rather than watch it gather dust in their homes in some corner or the
other. We all do it in some measure – we transact in larger value notes and keep pocketing the change in coins, only to go back and transact in notes all over again and accumulate more coins that lie around unused.
Well, maybe not all of us. Out in Kyegegwa, around a 100 kilometers from Fort Portal in Western Uganda, we met a man who had a lot to teach us. This man owned a small shop that dealt in food items, imperishable items, and hardware amongst other knick-knacks. When we approached him to open up a PostBank account, he jumped at the idea almost immediately. The accessibility that the mobile Postbank van was offering him was invaluable, as he spent time and effort to travel to his bank that was at least 40 kilometers away. Just how much time and effort we were sparing him became immediately obvious as we watched his trusted aide and a PostBank staff struggle through a short distance of 50 meters to the waiting van with a dirty, bulky cement sack. Once the sack was opened up, it revealed not cement but smaller, black polythene packets all neatly tied up. As the PostBank staff delved deeper, they found that the black packets contained stacked coins packed tightly in neat, plastic covers. The shop-keeper had been saving his coins – loose change that his customers often handed over to him. In just over 6 months, the shopkeeper had managed to save 2.1 million Ugandan shillings (around $950) in coins – something that took the PostBank staff over an hour to count and tally!
When I went to interview this shopkeeper with the amazing story, I discovered that he had some very sound savings principles. He understood that even small amounts put aside regularly could accumulate over time into significant savings. This is the first tenet of good savings behavior – start putting away some money regularly, even if it is a very small amount. You will be surprised at how it adds up over time. The shopkeeper was also an organized saver. Every black polythene packet of his had a small piece of paper that mentioned the date and exact amount in that bag – a meticulous method of tracking his savings. But the most amazing part of the story was how the shopkeeper took a vital financial decision – that of deciding how to save the notes or coins that came into his hands on a daily basis. The shopkeeper quickly decided to re-invest the larger value notes into his small business and expand it, while putting the coins away as savings. Evidently the shopkeeper realized that even smaller value currency could add up to significant savings, but at the same time this decision was guided by his desire to protect his savings. The naturally heavier coins, and therefore the heavier sack with his savings, was an instant deterrent for thieves who would try to haul the sack away from his shop – something that a sack full of lighter notes could have never achieved. Moreover, the cumbersome sack would restrain the shopkeeper himself from taking the sack out of his shop and spending his savings, effectively curbing the ease of access to his money. This constitutes another important principle of good savings behavior – getting your money out of your reach, or creating a trivial barrier between you and your savings. This barrier should not be so big that accessibility becomes a major issue, but at the same time it should not be so small that you can access your money easily and thus, spend it unnecessarily.
After hearing this amazing story, I immediately took the stray coins from the various pockets in my bag and put them away in my wallet. I smiled as I put the wallet away in my bag – I had gone to educate the people in these Ugandan village and towns about the importance of savings, but our local Ugandan millionaire had taught me something valuable instead!