Monday, August 22, 2011


By CHEGE MUIGAI Business Daily Sunday, August 21

Kevin Ndabi, a city lawyer, owns a BMW and lives in an impressive house in South C, Nairobi. Armed with a pricey smartphone and an Apple iPad, Ndabi admits that he has been spending money beyond his means.
“It’s a trap of the times,” he says. “It’s all vanity I agree. But without building a super image in this day and age, it would be impossible to do well career-wise and in my personal life. The girl I wish to marry wants to see cool stuff to respect me.
Without spending money on myself to look good and on her too — upkeep, clubbing and all — she would never give me a second look.”
Mr Ndabi is part of a growing list of Kenyans, trapped in a consumer culture and who are getting into serious debt as a result.
“Kenyans have a spendthrift culture,” says economist Dr Tabitha Kiriti, a senior lecturer at the University of Nairobi .
“With all the easy loans being advertised around, Kenyans dive right into them without any forethought or fore planning. Because of the lack of specific projects, when the money comes, there is misuse.”
As a result, the economy is paying the price.
Kenyans love to express themselves materially and most of the money gets lost in unnecessary expenses like gadgets, outfits and cars. These are all consumables that lose their value fast,” says Dr Kiriti. “It is a cultural thing.”
She adds that this habit is weighing down on the economy, killing the shilling’s value and contributing to the high cost of living.
“When people save, they are able to invest. Such investments in turn contribute to economic production, which means more wealth for the country.
But if the society is only spending and not investing, it means wealth is being exported. It also means that the country’s currency is vulnerable because of the relatively bigger import than export flows, which is the case with our shilling currently.”
 Anne Gichanga, managing director at financial planning firm Regnum agrees: “Everything is significantly more expensive.
It would be impossible for most people to save now. Overall though, even in much better times, Kenyans have not been saving as much as is necessary.
It is more of a lack of financial discipline than anything else.” Ms Gichanga says that the cycle of debt that many people have sunk into is very hard to get out of.
 “If you spend before you can earn, that is an emergency financial situation,” she says.
“Living within your means and spending only what you earn is the first step to a successful financial life.”
The plight of Generation Y worries Ms Gichanga too. “The young people coming to employment now have a very lopsided approach to financial success. They want to get rich instantly, live a very high life and are ready to cut corners to get there.”
 She adds: “It is not uncommon to see some guy only two months into his job living in a house that eats up half of his salary, has an iPhone and is seeking a car loan. All of these are well and good. But none has the potential of generating a sustainable income.
Ms Gichanga says the way out is for people to adopt responsible spending habits at the personal level.
 “As much as possible, a portion of any income should be channelled into profit-making projects,” she adds.
 That, says Ms Gichanga, is hard work that calls for sacrifices.
“Nobody ever became successful without great financial discipline, denying themselves many luxuries and having taken a 360 degrees view on their spending. But you mostly see people going about their lives without caring about the future. That is suicidal.”
Figures from the Central Bank of Kenya (CBK) show a rise in Kenyans’ indebtedness.
According to CBK, personal loans shot up by Sh61 billion to stand at Sh296 billion. This was much more than any other sector of the economy.
If the words of Dr Kiriti and Ms Gichanga are anything to go by, this is money that finances consumption more than investment. Sh296 billion going to non-productive activities is a major worry for the economic future.
 “It is a trend that cannot be afforded,” says Dr Kiriti. “Countries that are doing well are those that make more money than they spend. China, Singapore, Malaysia and Thailand are fast industrialising because of their positive balance of payments.”
She says that the earnings translate to a net surplus per capita which Kenya must aim to achieve.
Anastasia Aluoch and Mr Ndabi concede to being financially careless.
 “Without doubt, I could have done better,” says Ms Aluoch, who is a teacher in Kawangware, Nairobi. “I took loans to move house, furnish it and to have fun. Now I have a big debt to pay and I am really struggling. Had I invested, I would be making money rather than losing it.”
She adds that she is in a perpetual debt cycle as she can barely meet her monthly obligations from her salaried income any more.
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payday loans said...

The western extravagance culture it seems is growing in Kenya. I would never expect people to bite into that lifestyle furrah. They are better off with savings.

Theodore Smith said...

I hope she has a business or she'll be surely in debt.
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debt collection agency said...

People should pay their debt or they will be really big trouble.

buy here pay here car lots said...

I have to agree with Theodore.

car loans said...

I think they will gain this as the economy improves