In recent times in Ghana, most financial institutions, especially the banks and life insurance companies are doing everything in their power to attract people – clients and prospective ones – to save with them. But have the people waited a minute to think about how much they are getting back in terms of returns on their savings?
Most of these financial institutions are just “sucking the blood” of their clients. Come to think of it that the highest they give on returns for savings is just about 15% or 18% per year, whereas they charge interest on loans for as much as 32% to 40% per annum thereby making a HUGE spread. With the Microfinance companies, it is, even, worse as they have Savings/Deposits rates of between 21% to 35% per annum; and their lending rates from 60% to 72% p.a.
It is for this reason that not until these financial institutions try to close the gap between borrowing and lending rates, the act of savings, in Ghana, is not worth it, but except for putting something aside for emergency purposes. Now, is having a little cash on hand in case of an emergency a good idea? Yes of course, but excessive savings and a lack of investing (due to fear) will only cause you to lose in the long run.
Society, your parents, elders, and peers, and even financial advisors, will all tell you the best thing you can do is start saving money while you are young. But if you know the Cedi’s value is without a doubt going down, why would saving a bunch of paper be a good idea?
Here are some reasons why savers are losers:
• People do not become tremendously wealthy by saving.
Wealth is built through investing by debt and derivative contracts. Investing allows people to build wealth by leveraging their money. The smartest thing you could have done some years ago is not to save your cash. The smartest thing would have been to go into debt to buy a house, invest into mutual funds, good stocks, or into money markets (compounded Treasury Bills, etc). Why? Because you are able to build wealth: whereas in Savings your money would be devaluing, because of inflation. For you should know that the value of your money in Savings today would not be the same tomorrow, or while the value of the Cedi decreases over time.
• A Cedi is merely a medium of exchange. It is a piece of paper.
Real wealth is learning to buy assets. Many people do not understand debt or derivatives in investing. These are things not taught in school, but would be lucky to have it from a good financial advisor.
• Saving is a practice in discipline, but will not maximize your wealth.
Saving huge sums of money is neither genius nor creative. It will not help you maximize your wealth. The Cedi, and for that matter most currencies lose value over time. But building assets (real estates – lands, houses; mutual funds; good stocks) leads to an increase in value over time.
In terms of savings, it is important to ask yourself a few things: do I have enough money put away in case there is some type of emergency? Do I have a rainy day fund? Otherwise, look to build cash flow. Look to invest to acquire assets.
You have to look at the bigger picture – if we are thinking long-term, the value of the Cedi is decreasing. If all the people were huge savers, we would be losing a massive amount of wealth. Building wealth comes through investing – not saving.
So, folks, the next time you see or hear the financial institutions’ adverts in the newspapers or from the radio, wait and ask yourself whether it is worth it saving with them. At worst, please do proper negotiation with them in order to get a better deal. But keep it in mind that there is a HUGE difference between saving and investing.
Author: Sam Bediako-Asante is the CEO of Sambed Consult, a Business/Investment Advisory firm. He is also a former Banker, a Professional Administrator, and also presently, a certified and an accredited SA Specialist of the South African Tourism in Ghana.
Can be reached on 0277518634 or email: firstname.lastname@example.org