Kenya has made significant progress in expanding access to financial services, but having access to an account or financial product does not necessarily mean a household is financially secure. According to financial experts, the more important question is whether a household can withstand a sudden loss of income without being forced to borrow, delay essential payments or sell assets. This highlights the need for Kenyans to have a savings cushion to survive income shocks.
Kenyans save through a wide range of channels, including banks, mobile wallets, Saccos, chamas, money market funds and pension schemes. Therefore, bank account balances alone do not provide a complete picture of household savings. At the same time, not all savings are equally accessible. Money set aside for retirement, for example, may not be readily available to meet immediate expenses such as rent, food, school fees or medical bills.
A recent finding by FinAccess revealed that only 18.3 per cent of adults are financially healthy, highlighting the gap in financial resilience. Financial wellness should increasingly be assessed by looking at whether households have sufficient accessible savings to meet essential expenses for at least two months without borrowing or falling behind on payments. This is a more useful measure of financial resilience than simply looking at balances held in bank accounts.
When households have little financial breathing room, long-term savings can also come under pressure. Voluntary pension contributions and personal retirement schemes are often among the first expenses to be reduced when families face rising costs or income disruptions because immediate needs take priority. This creates a difficult trade-off between short-term survival and long-term financial security.
One way of addressing this trade-off is to build an emergency fund in an accessible savings account or a money market fund while maintaining regular pension contributions. This can provide a cushion for households to withstand income shocks and ensure they have enough financial breathing room to meet essential expenses. By doing so, households can avoid reducing their long-term savings and maintain their financial security.
The goal should not only be to get more Kenyans into the formal financial system, but to ensure they have enough financial cushioning to withstand shocks while continuing to build wealth for retirement. This requires a shift in focus from simply increasing access to financial services to promoting financial resilience and wellness. By promoting financial resilience, households can better withstand income shocks and achieve long-term financial security.
Experts recommend that households prioritize building an emergency fund to meet essential expenses in case of income disruptions. This can be achieved through regular savings in accessible accounts, such as mobile wallets or money market funds. By building a savings cushion, Kenyans can improve their financial resilience and reduce their reliance on borrowing or selling assets in times of financial stress.
Key points
- Only 18.3 per cent of adults in Kenya are financially healthy, according to FinAccess.
