An overwhelming nine in 10 Kenyan consumers are earning less than or the same as they did before Covid-19, despite the cost of goods and services rising by at least 30 per cent since then.
This means that most of these consumers currently have less money in their pockets than they did before being impacted by the pandemic, resulting in deep financial stress that has seen Kenyans lose confidence in the economy.
According to the Old Mutual Financial Services Monitor 2024, Kenyans’ confidence in the economy is very low at only 16 per cent (lowest amongst 20 to 29-year-olds at seven per cent).
Another contributor to financial stress is dependents; three out of four working Kenyans have children, with most being less than 12 years old.58 per cent have other adult dependents that rely on them financially, and these are mainly their parents.
Overall, 46 per cent are a part of the sandwich generation (financially taking care of both children and adult dependents).
The high incidence of child dependents aligns with education, the top savings goal, with 40 per cent of Kenyans working towards this goal.
Education costs are also the highest unexpected expense that Kenyans have taken out a loan for. The Federation of Kenya Employers (FKE) puts direct dependency for formally employed individuals at an average five dependents per person.
This, as individuals in formal employment navigate squeezed earnings after government raided their payslips for statutory deductions to fund the newly rolled out Social Health Insurance Fund and affordable housing. This adds up to other statutory deductions, further reducing their take-home.
“We need to inject liquidity into the market allowing the employed to have more disposable income which will stream down to other sectors of the economy mainly businesses,” said Robert Ochieng, CEO and co-founder Abojani Investment.
Another survey dubbed the ‘Consumer Spending Index’ for the third quarter of this year shows that a notable portion of households, 55 per cent, have experienced stagnated income year-to-date, exacerbating the challenges posed by rising prices for essentials such as food, housing and healthcare.
On the other hand, 26 per cent of the surveyed respondents reported an increase in their income while 19 per cent reported a decrease.
“Although majority of individuals reported that their income remained the same, workers in the wholesale and retail sector reported the highest decrease at 26 per cent,” the report says.
“Conversely, people working in the manufacturing and trade sector saw the highest increase, with 30 per cent of respondents reporting an increase in income.”
Notably, 26 per cent of people working in the education or training sector reported an increase in their income whereas 10 per cent reported a decrease.
Most respondents who reported a decrease in their wages largely attributed it to poor performance in their businesses or investments, accounting for 44 per cent.
The second most common reasons cited for decreased income were increases in taxes and job losses, both at 22 per cent. Pay cuts were the least mentioned cause, representing only 11 per cent.On the other hand, respondents who reported an increase in wages attributed the gain mainly to get a side job, at 28 per cent and a salary increment at 26 per cent.
The hotel, tourism and leisure sector saw 19 per cent of the respondents note an increment while 22 per cent noted a decrease.
BORROWING TO SURVIVE
To make ends meet over the last year, 41 per cent of Kenyans borrowed money from family or friends with one in four borrowing from Chamas, while some ( 38 per cent) used their savings to sustain themselves.
According to the report, paying off debt is among the top three financial priorities among Kenyans.
The most prevalent formalised credit used includes credit cards at 34 per cent (which are mostly taken up by those formally employed), personal loans from Chamas ( 25 per cent) and personal loans from friends or family ( 24 per cent).
At least 37 per cent make use of their mobile money accounts to take out a loan.When it comes to savings, 22 per cent of working Kenyans make use of SACCOs.
Chamas are also popular with 44 per cent incidence. SACCOs and Chamas are mainly used for saving towards education costs, buying property, and business needs.
In Kenya, consumers have a high side hustle spirit with over half being self-employed such as owning a business. These businesses tend to be very small with only the founder operating on their own or with five or fewer employees.
Starting a business is the second highest savings goal for Kenyans, driven by those aged less than 50 years old.
The entrepreneurial spirit also comes through, as 22 per cent are “Polyjobbers” – which means receiving an additional income over and above their regular job.
The majority of consumers are informally employed ( 70 per cent), most do not have products through their employers.
Only 40 per cent have any EB products (products and services, other than an advance, credit product); with medical insurance and retirement funds being the highest. A significant portion is taking out loans in their capacity to pay for unexpected expenses such as medical costs.
LOW RETIREMENT SAVINGS
Whilst 81 per cent feel that saving for retirement is important, only 26 per cent claim to have started saving for it. Saving for a comfortable retirement is a lower priority regarding savings goals (only in the ninth position).
As majority of consumers not currently taking action to start saving for retirement, about half are hoping that their children may support them when they are old. Those who are saving are doing so through pension or retirement funds, Saccos and bank savings accounts.When it comes to savings, 22 per cent of working Kenyans make use of Saccos.
Chamas are also popular with 44 per cent incidence. At least 22 per cent of Kenyans own a home but very few are insuring their homes.
The report shows that 20 per cent are saving towards better home/home improvements and 17 per cent are saving for their first home.
“Saving mostly depends on disposable income so if this reduces, then people will struggle to save. By the time you think of retirement, it becomes difficult,” Ochieng noted.
While inflation has dropped to a 14-year low, some commodity prices and other expenses remain high with Kenyan households struggling to meet basic needs.
“Low inflation amidst high interest rates, declining private sector credit growth and anaemic private sector activity is an indication of deteriorating economic growth. It is important to note that inflation is still a growth in prices, therefore the high cost of living persists,” data analyst, Mihr Thakar, told the Star.
Compounded by higher taxation rates, this greatly impacts the small 3.1 million strong formal sector, he noted. The country is also grappling with a high unemployment rate which the Federation of Kenya Employers describe as “still very fragile.”
“We are not yet back on track since
Covid -19. Every day we receive notifications from employers on their
intent to declare redundancy,” FKE
said.
