Savings Weebly by jennyyingdi


									Financial Literacy, Lesson 3


    - Define “savings”
    - Describe and categorize purposes of savings
    - Indentify how to overcome savings difficulties

What are savings?
It is an amount of money we set aside in order to build a sustainable capital; it can be in form of
money or tangible property. Some people save through investment in landed property in Nigeria.
Land appreciates, it does not depreciate, so people invest in land and buildings too, some people buy
bonds and shares and they can easily sell them to invest in business.

        Be sure to include:
            o Money that is put away in the present for use in the future
            o Investments in jewelry, animals or land that can be sold when cash is needed
            o A way of building assets
            o A fundamental part of money management

What are three reasons why people save?
People save in order to secure their future or for unforeseen emergency expenses
We also save when we can work and young because of when we cannot work or when we are old.
We also save in order to build up capital for expansion and growth

Every individual or family has different reasons to save. Savings help us to protect against future
anticipated events and build assets. It also permits us to enjoy the pleasures of life. But despite the
obvious benefits, many people do not save.

Why is it difficult to save money?
Oftentimes in Nigeria, we do not save because what we have is not even enough to cater for our daily
needs, life is hard to feed talkless of to save, how can one save money when the family is hungry.
We do not also save because we do not have, how can you save what we don’t have? The reasons for
not saving in the developing world may be because of consumerism but in Nigeria, most of the people
are so poor to eat talkless of to set some money apart.
It is also difficult to save because of wastage, some people waste so much money on unnecessary
frivolities like burial, naming and wedding ceremonies.

What can be done to overcome these barriers to saving?
We can determine to be discipline, whether there is food to eat or not, there must be a certain
amount saved.
We try as much as possible to ignore wants and face only our needs. By so doing we wil be able to set
some amount aside no matter how hard life seems to be.

Two rules of saving:
   1. Spend less than you earn!
   2. Save something every day or week!

     - Set short- and long-term savings goals
     - Rank the importance of savings goals
     - Develop a savings plan for the family

What are the savings goals of your family?

We intend to open an account for the future of our children
We intend to buy hectares of land in the remote region of Lagos and as the areas begin to develop, the
land will appreciate and become expensive
Also, we intend to build houses and rent out for tenants to pay into a separate account that will in
turn be used to build more houses.

A few notes on savings goals:
        o Savings goals can be short-term or long-term
        o Short-term goals are those that will be reached in less than 1 year, such as paying school
        o Long-term goals are those that will take more than 1 year to reach, such as home
            improvements or buying a house

Now, review your savings goals and indentify which are short-term and which are long-term.
Because it may not always be possible to reach all of your goals, you should know which ones are
your priorities. Rank the goals in the “Savings Goals and Planning Worksheet” below in order of
importance using 1 for the most important, 2 for the next most important and so on.

EXAMPLE: Savings Goals and Planning Worksheet
                                                         Amount of
                                                        Required per
                      Lump Sum            When            Week or         Rankings of
  Savings Goal         Needed            Needed?           Month          Importance
 Short-term                                                              Excellent 5
 Education Fees          $120          In 6 months       $20/month
 Fund                    $180          In 3 months       $60/month       Good 3

 Building                $720         In 36 months       $20/month       OK 1

  Total Savings
     Required          $1,020                           $100/month

Why have you ranked the savings goals in this way?
Education of the children is paramount because government’s school is bad and we have to pay the
school fees of our children in Christian school to avoid being sent home and it’s a shame.

Now it’s time to develop a savings plan for your own family. To achieve your financial goals, you will
need a plan that states each goal, the amount of money you will need to achieve that goal, and the
amount you will save each week or month over a defined period. To make this plan, you much look at
your income, determine how much you have available to set aside as savings, and decide your
savings priorities. Which goals are most important to you? A clear plan will help you know what to
do, increase your discipline to save and be more successful in reaching your savings goals.

For each of your goals, answer with following questions:
    o How much will it cost to reach this goal?
        $2000 for the children per annum
        $36 per week

        Emergency funds
        $1000 per annum
        $18 per week

        $18 per week

    o   When do you need the money?
        There are three terms in a year and will need about $700 per term

    o   How much will you need to save every week or month?
        About $60 dollars per week.

Which goal is most important, next in importance, and so on?

Emergency funds

Based on your answers from the previous questions, complete the “Savings Goals and Planning
Worksheet” below using your own savings goals.

Savings Goals and Planning Worksheet
                                                        Amount of
                                                       Required per
                     Lump Sum            When            Week or         Rankings of
  Savings Goal        Needed            Needed?           Month          Importance
 Education              $2000           Yearly         $36 per week     important
 Emergency              $1000           Annual             $18           important

 Building              $10, 000         5 years        $36 per week     important
                                       2 and half
 Vehicle                $4000            years             $72          important

  Total Savings
     Required          $17,000                                          Important

     - Determine your capacity to save
     - Identify actions that you can take to increase savings

What can people do to save more money?
Increase my input in my job, produce more, advertise more and market more. Then reduce spending
on wants.

Where do savings come from?
   o Settings aside a portion of income
   o Cutting costs (household expenditures, debt payments, optional expenses)

The amount you can save depends on the amount of money you have available. For many people,
having money to save depends on the time of year. It is important for you to determine the amount
of money you can save and when you can save it.

When and how can you save?
I can save some money every week and at every time of the year. I do not believe in spending so
much at a particular season.
I have a bank account and I do not use ATM card as a matter of principle, and I do not really like to
queue to save money.


     - List the types of emergencies and their consequences
     - Practice estimating the amount of money needed for emergencies
     - Describe how they can cope with emergencies by having an emergency fund
     - Include emergencies in savings goals

One of the most important reasons to have savings is to pay for emergencies and other unexpected
events. Now, take a few minutes to brainstorm the types of emergencies and unexpected events that
can occur at any time.

What emergencies do you think will have the most severe consequences?
The health of my children and mine is paramount to me and I am always afraid because we do not
have any health insurance and the government hospital is very BAD!!!
So I pray against any emergencies as regards my health and that of my children.

What emergencies are you most like to face in a year?
The issue of rent is another major challenge, we do not own a building and we live in a rented house
and if the land lady wants to use her house as they always lie, we will need to move out within a
month and look for another house in which we will still need to pay for 2 years rent, agreement fee
and agency fees. There is no peace of mind for poor tenants in Nigeria and housing is so expensive in
Lagos, because of its facilities.
Although my mother is very old, I have elderly sisters who are supporting her financial needs and no
one bothers me except when I have enough to spare. In Nigeria, our parents are our responsibilities,
we do not keep them in Homes, but they live with their children when they are oo old to live alone,
my mother is too old to live alone, she is 85 years, but she lives with my sister.
What are the consequences for you if they do occur?
The worst is I do not have a house to rest my head, it will be disastrous because a complete package
for a small house is about $3000 fo a small house in Lagos, one must pay for 2 years.

and if there is a need for health/hospital. I am always afraid of it, but I always manage the Heath
centre, which we refer to as death centres, an most of the time, we buy across the counter drugs after
getting the prescription from the doctor. In government hospitals, we buy all drugs and even cotton
wool. It is just a Prescriptive centre and we pay for consultation dn buy all drugs in the chemist.

Emergencies mean immediate costs to the family. The costs may include medical bills, rebuilding
from a disaster, replacing stolen goods or keeping up loan payments even after you have lost your
business. If a principal income earner is unable to work due to an emergency, the family will lose
even more income.

What can be done to cope with such emergency?
Health; I try to give the children metaprim every Friday to avoid malaria and we buy drinking water
to avoid typhoid which are the common sicknesses. For cholera and diarrhea, we do not eat any food
prepared outside and we always eat fruits too.
We always tell our landlady to give us a year quit notice , this makes up prepare ahead of any

You should have an emergency fund to handle relatively small emergencies. The emergency fund is
an important reason for saving as it can help you manage many smaller unexpected events and
prevent further loses. The rule for the amount of money to be kept in the emergency fund is as
follows: set aside at least 3 times your current average monthly income.

What are the difficulties that a family can have in trying to set aside this much money?

What is your advice to them?
Eat what you have not what you like
We have started farming and we plant all the necessary needs, I planted tomatoes, pepper, green
pepper, vegetables, and water lemon amongst other things, I have cooked my vegetable 12 times in
the last 6 months, I have not bought vegetables (spinach) since I returned from Cape town last year,
it is one major thing I will never forget transformation training.

    Be sure to consider:
        o Start setting aside something, even if it is only a very small amount, every day or every
             week. The amount will grow.
        o Look hard for ways to cut unnecessary spending.
        o Keep money in a secure location.
        o Save different amounts each time you earn some income.
        o Make a schedule to pay off the most expensive debts first.

Remember, the purpose of your emergency fund is to cover small emergencies. Most of us will not be
able to keep enough money to cover big losses such as our homes.

What are your suggestions to maintain enough money in the emergency fund?

Always pay back what you spend from emergency funds, be diligent and ensure that you always
increase the amount you are saving there, do not waste the money. Eat well and be good to our body.
        Include the following points:
            o When you use the fund, replace the money as soon as possible.
            o Decide how much you can contribute to the emergency fund each day, each week or
                 each month, and stick to your plan.

If you plan ahead for emergencies, you will have more success reaching your other goals. With an
emergency fund you can avoid using the savings you have for goals such as education and housing
improvements. You can also avoid costly borrowing.


      - List conditions that help people save successfully
      - List ways to save more

Internal/External Factors Influencing Savings
    o A safe place to keep savings
    o A good savings plan
    o Discipline
    o Family support for the decision to save
    o Motivation to meet personal goals: house, marriage, education
    o A convenient place to save (close to home, easy to get to)
    o Interest on savings
    o Desire to resist temptation to spend money on luxury items
    o Size of allowable deposits fits ability to save
    o Willingness to reduce expenses
    o Ability or opportunity to earn more income

The underlined items are those that you yourself can control. These are all things that do not depend
on other people or external or environmental factors.

Do you agree with how these are divided between internal and external factors?

What ideas do you have about how to save more?
Determination to save more
What makes it most likely that people will save?
If they have consistent earning
Set up an alarm as a reminder to save on a particular date every week
If they have budgeted enough for unforeseen emergencies
If the bank is closer home
If they are not spendthrift
Make friends with people who save money constantly as against those who party constantly
Learn from the experiences of those who have reap the dividend of constant savings.

        To help you save more you can…
            o Decide to save more
            o Decide what amount you want to save every day or week
            o Find ways to spend less and save money for more important things
            o Set aside some of our earnings or goods as savings
            o Learn about the savings services available in your community
            o Open a savings account
            o    Agree with other family members to help each other make regular savings
            o    Find people who save and ask them for ideas about how to save more


     - Identify savings options
     - Distinguish between formal, semi-formal, and informal savings services
     - Describe the advantages and disadvantages of formal, semi-formal, and informal savings
        services, including degree of risk
      - Identify features of savings services that will influence their choice

What are the ways people save in your community?

Daily contribution (informal) informal
Group contribution especially women who are from the same village. They meet monthly to gather
the money and they always lend out to members. Semi-formal
Microfinance: formal

A formal savings institution is regulated by a government agency to ensure the safety of savings.
Usually, formal savings services pay interests on savings. And some institutions insure savings. That
is, if the institution loses your money, the government will reimburse your for your losses up to a
certain amount.

Semi-formal savings methods fall in the middle between formal and informal. Semi-formal savings
institutions offer organized services but are not supervised or regulated by the government. They
include savings collectors, village banks, and other microfinance-group mechanisms.

An informal savings vehicle is one you manage yourself, usually at home. You may keep your
savings in cash, or jewelry or livestock. Savings of this nature do not have oversight from a
government agency.

Now go back to the list of savings methods of people in your community and decide whether each is a
formal, semi-formal, or informal way to save.

Have you used any of these saving services before? If so, how have you used the service?

I used to do daily contribution, we will be given a form and the old man who has a bicycle would tick
the days we paid. There is not formality, if he runs way that is the end.

What are the advantages and disadvantages of each way to save (formal, semi-formal, informal)?
The daily contribution is easy because the bicycle man would visit your house everyday to collect the
money. It is not formal
The group contribution is semi-formal because the association is always registered with the
government, local government, there is the President and all members of the executive. The members
are related in the village and they have a binding constitution.

Microfinance is formal, established by an act. Can sue and b sued.
What bad things can happen to your savings?

The money can be stolen if the daily contributor man runs away and also, the group association of
women can also steal the money and begin internal rancor especially if one of the key executive dies
Savings bank is better, although there are several instances when our money have been stolen by
Banks in Nigeria. Few years ago, there has been so much problem with Nigeria bank and we re afraid
of them.

What savings services are safer than others? Why?
Banks are still better, there are some Banks that are good, just few.

In the “Risk Rating” column in the chart below, rate each of the saving services from 1 to 3. One is
low safety, two is average safety, and three is very safe.

  Savings Service              Advantages                   Disadvantages            Risk Rating
                           Safest option                 Low remuneration
 Banks                     Less temptation to            Minimum deposit
 Post Office                withdraw and spend             required to open
 Credit Union              May earn interest              account may be
 Unregulated MFI           Access to a wider              barrier
                            range of savings              May charge fees
                            products                      Long line and delays
                           Helps manage money             inside bank
                           Can Save time on bill         Can be confusing
                            payments                      Less accessible to
                                                           poor and those who
                                                           cannot read and
 Savings with              Easy access                   Safety not
 Group (village            Savings often linked to        guaranteed
 bank, non-                 credit                        May or may not earn
 regulated savings         May earn dividends on          interest
 and credit                 loans made with               May have limited or
 association, etc.)         savings                        no access to loans
                           Group rules about             Limited access to
 Deposit Collectors         frequency and amount           savings or
                            of deposits encourages         withdrawals subject
                            savings                        to group approval
                           Discipline
 At Home (in cash)         Easy access                   Not safe
                                                          Too easy to spend
                                                           and ‘waste’ on non-
                                                           essential items
 In Kind (gold,           Value might increase          Difficult to liquidate
 jewelry, livestock,       over time                      in case of emergency
 land, etc.)              Must sell to access           Value could decrease
                           cash – decreases               over time
                           temptation                    Risk of theft of death
                                                          (in case of animals)

What are the characteristics of savings services that are important to consider when selecting a
If it would yield interest

What is the most important factor when selecting a savings vehicle?

Easy accessibility
Proximity to your home


     - State the features of different savings accounts offered by formal banks
     - Match savings goals with specific savings products
     - Identify the appropriate use for each type of savings account

Characteristics to consider when choosing a savings service:
   o Access
   o Convenience and ease of use
   o Opening deposit requirements
   o Safety
   o Interest earned on savings

How do you think your savings goal will influence how you save?
I really want to save enough to have enough capital to start a company of my own.

What features of a savings account will help you save when you are saving for the long-term?

What features do you want your savings account to have?
Long term withdrawal
Table 1. Formal Institution Savings Product

Type of Savings Product               How It Works                               Uses
Regular or Passbook            Voluntary timing and amount         Emergencies and unexpected
Savings                         of deposits.                         opportunities
                               Flexible withdrawals                If only one product can be
                               May or may not pay interest          offered, this type of product
                                                                     often is the one that best
                                                                     meets client demand.
Contractual Savings            Regular deposits of fixed           For expected needs
(Also known as                  amount over a pre-determined
“accumulated deposit,           period of time. Client can
fixed-term account”)            decide how much to save for
                                low long (choosing from a pre-
                                set range of terms).
                               Access to savings restricted
                                until contract is fulfilled.
                               Penalty is paid for early
                               Interest usually higher than
                                regular savings account
                               Can borrow against your

Time Deposit                   Fixed sum for a predetermined       For larger needs expected in
                                term and rate of interest            future such as marriage, or a
                               Requires minimum deposit             major capital purchase
                               Inflexible
                               Pays a higher rate of interest
                                rate than either a passbook or
                                a contractual savings product
                                for the same amount of savings

Which account do you prefer?
Regular passbook savings
Easy to access and use in case of emergency too
You can always send someone to deposit
You cannot send someone to collect on your behalf and so you have the chance to think twice before

Would you be interested in more than one type of account? Yes
Why? Because every account has different advantages.

      - Identify financial institutions in your area
      - Identify the key features of savings products that influence which ones we choose
      - Develop a list of questions to ask to learn about these features
      - Conduct interviews of bank employees
      - Process information gathered at the bank

First, let’s review the different types of savings services. What are the different categories of savings
services we talked about our last meeting?


What are some of the differences between informal and formal savings services?

Informal: what you keep at home, livestock, savings in your mud bank under the bed

Formal: government regulated
Yield interest
Process of withdrawal

Do you know the answer to the question, “Where is the best place to put your savings?” Although the
answer to this question might be different for everyone, there are common questions you can
prepare that can help answer it. Brainstorm questions to ask about each of the important conditions
for saving and note them in the chart below.
        Important Conditions for Saving                               Questions to Ask
Access to savings/flexibility of withdrawal         Can I just go to any nearby location, insert my
                                                    ATM card and withdraw cash.

Requirements for opening deposit account              Do I need to have so much money to open an
                                                      account like UBA that requires 25,000 Naira?

Convenience, ease of use                              Is it cumbersome to operate?

Safety                                                Is my money safe?

Interest earned on savings                            Will interest be accrued?

Cost of savings                                       How much is charged for keeping my money
Liquidity                                              What happens if I don’t visit within 6 months?.

You can use the “Field Visit Report Form” below when visiting banks to determine what saving
services are best for you.
Field Visit Report Form

Institution Visited: Bank of Industry __      Contact Person’s Title: __Ms. Rasheedat

         For each different product at the bank you visit, fill out the table as necessary.

         Product: Guarantee Trust Bank, Ogba Branch

         Savings Goal: __To save enough for future and emergency usage

          Features                                                 Details
Access/Flexibility                  It has several branches all over Nigeria. I can operate the account
                                    everywhere and online too.

Opening Deposit Requirements        15,000 Naira and utility bill and 2 passports photographs

Ease of Use of Services             Easy

Safety                              Yes, relatively safe considering the high rate of Bank robbery and
                                    Again, the Federal government has taken over the bank from the
                                    owner and convicted the owner for mismanagement and pumped
                                    Nigeria’s money to resuscitate the bank

Interest Earned on Savings          Small percentage, it was 20 naira , that is a bout 1/10th of a dollar)
                                    every month on the 100 dollars I saved

Cost of Savings                     No cost
Liquidity                      If I do not pay come amount within 6 months, I will have to reapply
                               again and give reasons for inactive, that is dormant account.

Suggested Questions to Ask at the Bank

 Important Conditions for Saving                          Questions to Ask
Access to savings/flexibility of        How often can I make withdrawals? Self
                                        Is there a minimum amount I must withdrawal? Must
                                         leave at least 10 dollars in the account.
                                        What withdrawal penalties does this account have? None
                                        Is there an ATM network? Yes
Requirements for opening deposit        How much savings is required? At lease 10 dollars
                                        What documentation do I need? A passbook and SMS
Convenience, ease of use                What are the bank’s hours? 8.30 am – 4pm
                                        How long is the wait to be served? Depends on the
                                         number of available customers, long queue often.
                                        Do clients receive account statements? How often?
                                        Do you offer telephone and/or electronic transactions?
Safety                                  What is the reputation of the institution? Better thatn the
                                        What insurance or guarantees safeguard clients’ funds?
                                         Will ask next visit.
Interest earned on savings              What is the interest rate on savings?
                                        How does it compare to other institutions?
                                        How often is interest paid?
                                        How is interest calculated? For example, is it a compound
                                         rate? (Is interest paid on both the principal and accrued
Cost of savings                         What fees are charged? (Transfers, ATM withdrawal fee)

Liquidity                               How easy is it to withdraw funds from the account?
                                        Will the full account be available?
                                               Are fees charged if the funds are withdrawn before a
                                                specified date?


    - Practice making a savings plan
    - Select savings services that best match a family’s goals
    - Complete an action plan for increasing your own savings

Go back to your “Savings Goals and Planning Worksheet” that you completed previously and make
modifications based on what you have learned about savings.

Now, complete the “Savings Targets” worksheet below in order to determine how much you will
need to save each month to meet your savings goals.

Savings Targets

 Savings Goals          1      2        3      4     5      6       7       8       9      10      11         12
 Cooking bag            40     40       40     40    50     50      50      50      50     50      50         50
 Tie and dye            20     20       30     30    40     50      50      60      70     100     100        100
 sold                    10       20     20    20    30      30      40     40      40      50      50        50

 Total Saved             70       80     90    90    120     130     140    150     160     200     200       200

How likely do you think it is that you will be able to achieve your savings goals?
I believe that if I really work hard, I will be able to achieve it. Why I said this is that I do not really
have so much burden except the normal day to day contribution to my children’s upkeep.

What can you do to help ensure that you will be able to meet your savings goals?
Start immediately and be determined
Add more goods to sell especially consumables like liquid soap, bathing soap, disinfectant which we
produce at home.
Reduce spending and plant some vegetables and pepper which we are doing already.
Learn to live without money, even if it is twice a week

Tips for savings:
     Look for new ways to save on expenses
     Look for new ways to increase income
     Look for new ways to save part of your income regularly
     Examine whether you can meet a goal for less money
     Prioritize your goals – perhaps you can put off one goal to realize another one
Now it is time to select the best savings product for each of your savings goals based on your field
visits to savings institutions. Complete the “Selecting Savings Services” worksheet to match the
savings services that are available to you with your savings goals.

Selecting Savings Services

Savings Goals       What are the                 Which type of savings       Which local financial
                    characteristics of           account best responds       institution offers the
                    savings services most        to their needs?             best terms, conditions
                    important to you?                                        and other features for
                    Formal Savings account       School account for          GTB is good
                    not current                  children fees
Future use

                    Formal savings account       Savings account with        Bank of Industry
Rent a bigger

                                                 Formal savings account      GTB is good

                    Formal savings account
Emergency funds

To top