Does anyone in Pakistan know how to save money?

Financial literacy is a life skill; a behavioural outcome. It helps us become financially responsible and independent.

Mustafa Mufti April 27, 2014
While I was visiting a friend, I came across something very peculiar. His domestic help, who was serving us tea and refreshments, had headphones plugged into his ears and kept chatting away to someone over his phone. His behaviour remained consistent during my four-hour-long stay and I wondered how he was able to talk so long without his mobile balance running out. 

Giving in to my curiosity, I asked my friend about his servant’s excessive phone calls, to which he explained that of the Rs10,000 that he received as salary, a major chunk of it went either to buying a new phone or getting his mobile credit recharged.

He went on to explain that the poor lad had a family, back at the village, he had to support but due to his idiosyncratic spending patterns, he always ended up asking for an advance payment of his salary or taking loans from his relatives. Though it wasn’t an uncommon behaviour, it still struck me as odd.

Why spend so much money on something so trivial when you have an entire family to support? If only he would understand how to effectively manage his finances. However, I have to admit, managing finances is never easy, even for the best of us. I have come across many situations where a friend or a relative has problems in making ends meet, despite earning a decent income.

On another occasion, while I was out for dinner with my friends at a restaurant, one of my friends noticed that even though all the prices on the menu were increased in the bill – under the pretence of tax payments – the sales tax amount was not added under a separate head. So, although we were supposedly paying more to cover up the taxes, the restaurant did not keep a clear cut account for tax payments.

In his confusion, my friend decided to go to the manager and inquire about this, since a good amount was being charged in the name of sales tax. After much deliberation with the manager and a dissatisfying response from him, the case was forwarded to the owner. The matter was discussed with him and eventually, he agreed to waive off the supposed ‘tax’ amount that was added to the existing prices of the food. The restaurant was neither registered with the tax authorities nor was it paying any taxes but it was still charging the same from its customers.

A lack of financial literacy gave this restaurant a chance to make a fool out of so many people, everyday. And my friend, whom we were initially accusing of causing a scene at this ‘sophisticated’ place, ended up becoming the smartest amongst us who managed to help us save our money. But his query meant more than just saving some money for a post-dinner ice-cream treat; it reflected upon our ignorance about financial concerns.

My current job allows me to have access to a lot of data and finance-related cases, and many of these suggest that we, as a nation, severely lack financial literacy. To get a better idea of what I am talking about, let me ask you a question.

How many of you had a bank account before you started working?

How many of you have planned your finances for the next 10 years to come?

If most of you, who are fortunate enough to have an internet connection and the capability to read a blog in English, answered in the negative, think about those who are at the shorter end of the stick. How do those people manage their finances, if they manage them at all?

There are people who actually despise stepping into a bank, as much as a saint would despise liquor. How can one expect to have a financially sound country if its people are so suspicious of its financial institutions?

I, despite having the luxury of studying at good private schools, can’t recall being taught about budgeting or personal financial management skills, and neither was I ever introduced to concepts such as income, money management, saving, investing, spending, credit and the likes. All I can recall is the cell drawing that I was taught to make in grade six, which only looked like a scrambled egg to me at the time and I don’t see how it has helped me in practical life at all.

Given the saving/spending habits that most of us have, it is not surprising that we are such a poorly administered nation that has trouble making ends meet because we always have massive debt looming over us. It was a disturbing fact to learn that only 14% of our 180 million, and growing, population have access to formal financial services.

Many people live below the poverty line in Pakistan, not because they can’t sustain a suitable income but because they lack basic income, expense management and financial planning skills. A friend of mine, who always asks for a quick loan at the end of the month, despite making a decent living, once laughed at his own miserable situation, saying how his life contrasted with the American standard of living. Over there, people live from paycheque to paycheque while here, he lived from paycheque to five days after receiving it!

A research conducted by the Financial Basics Foundation suggests that out of a 100 teenagers with similar life chances, only one will make it to the top of the pyramid, while eight will be financially independent, 28 will be dead and a staggering 54 will be broke, dependent on government or charity.

If this doesn’t explain the importance of financial literacy, then I don’t know what does.

There isn’t one particular way of teaching children about finance management, but the quicker they learn the concepts, the better outcome it will generate. I have understood financial management the hard way but people can learn from other people’s experiences. Here are a few quick tips that parents (or teachers and guardians) can adopt to introduce the younger lot to important financial concepts and practices:

1. Invent games and other fun activities to teach children the importance of saving, income, budgeting, financial products and the likes.

2. Tie rewards with household chores and make it a fundamental rule that a portion of such allowances and pocket money goes into savings.

3. Take your children along with you when visiting a bank or an ATM, and make them do the basic operations such as writing a cheque or filling a form.

4. Make use of financial products targeted towards children, such as the young savers account, to inculcate the habit of saving.

5. Encourage them to take up work opportunities at financial institutions so they can get a grasp of the practical intricacies of the financial world.

6. Involve them when making a household budget and encourage them to make one for themselves.

7. Teenagers of a certain age should be encouraged to look up opportunities to start their own businesses. They should be taught to invest their savings in different financial securities such as the stock market, with guidance from seniors.

In addition to this, schools should make classes on personal financial management mandatory and the curriculum should cover basic level information on areas such as saving, information on money, budgeting, managing debt, understanding financial language and understanding rights and responsibilities to equip students with real life skills.

Financial literacy is more than just the ability to recognise coins or calculations involving money. It is an essential life skill, a behavioural outcome that enhances our ability to make effective choices and become more financially responsible. The benefits that can be reaped from making simple tweaks to our knowledge base are immense and can result in helping us improve our standards of living, overcome vulnerabilities and plan towards economic security for a safe and sound future. And the time to start this is now!
Mustafa Mufti A central banker with keen interest in development finance. He likes to find logic in abstract things.
The views expressed by the writer and the reader comments do not necassarily reflect the views and policies of the Express Tribune.

Facebook Conversations


SS | 3 years ago | Reply | Recommend The minimum salary in Pakistan is set at PKR 13000/- practically at many places it is as low as PKR 8000/- Can anyone plan a budget in this salary?
Umar Shah | 5 years ago | Reply | Recommend Absolutely thought provoking. Being a society we are poor finance manger,this is reason why we are facing such problems.
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