The FINANCIAL -- Many people in Georgia struggle financially. There is no tradition of
financial planning, and consequently, people live from hand to mouth,
get themselves into mountains of debt, and do not set any money aside
for a rainy day.
At GeoCapital , we also see a cultural discomfort with talking about money: admitting that you do not have any money is a no-go, and there is social pressure to spend money on conspicuous consumption, such as expensive cars and lavish dinners.
I believe that there are three things that one needs to do to become financially healthy: save money; use debt wisely and for the right purposes; and invest in your future. Today I will discuss the first imperative: saving.
Only 2% of Georgian adults engage in any kind of saving, whether it be using formal savings accounts or using community-based methods. This is an extremely low number, in fact, only Armenia, Madagascar, and Turkmenistan score lower on this measure. However, saving is extremely important, on both an individual level and a societal level.
On the individual level, saving helps people develop a buffer for rainy days. You might be doing fine now, but would you have enough money to survive if you lost your job, got into an accident, or if your house burned down? Savings can help you better survive these negative shocks that inevitably hit most of us at some point during our lives. Saving can also help you come up with the money that you need for something that you really want want to buy, such as a new refrigerator, a new television, or even a new car. Furthermore, it can make it much easier to get money for important life events, such as marriage or getting an (expensive) university education.
On the societal level, it has been shown that a higher savings rate positively affects economic growth. Domestic savings provide an economy with a pool of capital with which to fund investment in capital growth and productivity growth.
Starting to save is not easy, because you have to forego consumption now for some reward in the future. The first step is to set a savings goal: this can be a set amount, for example 100 GEL per month, or a percentage of your total income, for example 15%. Many Georgians tell me that they are too poor to save. However, different savings programs around the world have shown that even very poor people can save. A few years ago, I worked in the West African country of Benin, with a group of women who all lived on less than one dollar per day. They met every week, and each put a dollar in a cash box. At the end of the year, they had together saved hundreds of dollars, which is a lot of money in a poor country like Benin. If these poor women can save, most Georgians should not have any problem doing so.
Step two is to open a savings account at a bank. A bank is not only a safe place to store your money, it will also pay you an interest rate, which is free money: a reward for putting your money in that bank. Almost all Georgian banks offer savings accounts, and the costs of opening one are minimal.
Step three is to start saving. This is the hardest part: many people know that they have to save, but still find it hard to do so. It is very tempting to spend your money on something that will give you immediate satisfaction. The key is to put the money away the moment it enters your hands. If you get your income in cash, put it away in a separate box immediately, or deposit it at a bank. If you get your salary in the bank, most banks can automatically deduct a percentage of your paycheck, and deposit it into a savings account. After you do that, try to live on the money that is left over. You will see that it is not that much harder to live on a little bit less.
It is even better to put your savings in a place where it is hard to access the money. Banks offer term deposits, where you receive a much higher interest rate if you promise to keep your money in that account for a predetermined period of time. If you take it out earlier, you lose the higher interest.
It is also very important to cut unnecessary spending. If you want to buy something expensive, force yourself to wait a week or two. If you still want the thing after a week, you can buy it, but chances are that you have changed your mind in the meantime, and realized that you don’t really need that expensive new suit, or flat screen TV. You can also make a budget and give yourself a daily allowance. If your income is 700 GEL, and you save 100 GEL, that means you have 20 GEL to spend every day. Give the 600 GEL to your spouse or good friend, and tell them to give you 20 GEL every day. If you want to buy something that costs more, you will have to save up the daily allowances.
Saving money is not easy, but it should be part of any plan to become financially healthy. Many Georgians tell me they are too poor to save, but I think that is false. Being able to save does not depend on how much money you make, but on the attitude you have. Saving, however, is not the solution to all of your financial problems, and in the next edition of this magazine, we will discuss the topic of loans.
GeoCapital is Georgia’s internationally-backed microfinance organization. Just over a year old, GeoCapital is the largest direct US investment in Kutaisi with American management in place. Its mission is to offer competitive rates, excellent service and financial literacy education to the people of Georgia, thus creating opportunities for small business development, job growth, and individuals entering the workplace, helping Georgia build a better tomorrow. As a part of its social mission GeoCapital offers free classes and workshops in both personal and business finance.