Building savings and investment culture among Nigerians

Many Nigerians today live below the poverty line not necessarily because they have low incomes or poor salaries, but perhaps they lack savings and investments culture. The Harmonized Nigeria Living Standard Survey reports that Nigeria spends about N25 billion daily on food items. There is high propensity to consume but low propensity to save. This is quite alarming for a developing nation. High consumption would mean low savings, low investment, and low capital formation. If this persists, the Nigeria populace will be engulfed in poverty trap. It is therefore necessary to build among Nigerians savings and investments culture. A review of extant literature revealed that people save and invest for several reasons among which are to enhance the standard of living, take advantage of rare business opportunities, and meet unforeseen circumstances. Savings can be done through piggy, stokvel, thrift collection, credits unions, and banking system while investment is in the form of real asset, financial asset, and foreign exchange investment. Whatever form of investment one contemplates, it is very important to assess the risk-return trade off of such investment. Savings and investments guarantee your future. No matter how small is your income, you must learn to save to mobilize funds for investment. If the standard of living of Nigeria populace must be enhanced, there is therefore serious need for household savings and investment. Savings and investments must be our life style.
Introduction
The Harmonized Nigeria Living Standard Survey of 2009/2010 revealed that the consumption pattern in Nigeria is stewed towards food. Nigeria populace consumes at least N25 billion worth of food daily, which represents about 65% of total expenditure (National Bureau of Statistics, 2012). The less a society spends on food, the more developed the society becomes because the money not spent on consumption is saved to provide the resources that are needed to fund investment. Smiths (1776) recognized the importance of savings when he observed that capital is increased by parsimony and diminished by prodigality and misconduct. Many Nigerians today live below the poverty line not necessarily because they have low incomes or poor salaries, but because they lack savings and investments culture. The Department for International Development￾DFID (2012) reported that about 34.9 million adults population in Nigeria do not save. The propensity to consume is not in any way comparable to the propensity to save. It is therefore imperative that the Nigeria populace have a re-orientation towards savings and investment for improved standard of living. It is on this premise that we ask the following questions. What is savings and investment? Why do I need to save and invest? How do I save? Where do I save? What kind of investment do I make?
What Is Savings and Investments?
According to Olusoji (2003), savings represent that part of net income that is not spent on current consumption, but when applied to capital investment output increases. In other words, saving is a sacrifice of current consumption that provides for accumulation of capital. It is the act of preserving income for future use.On the other hand, investment is the commitment of capital to the purchase of an asset in order to gain profitable returns. Investment is the purchase of an asset with the hope that it will generate income or appreciate in the future. It involves committing money into an investment vehicle in the hope of making a financial gains with possibility of losing it.
Although some people use savings and investments interchangeably, from the professional point of view, saving is different from investment. A review of literature indicates the following differences:
(1) The purpose of savings is for the security and accumulation of capital while investment is for wealth creation. This implies that your motive for savings is to secure and ensure the safety of your money, whereas your motive for investment is for financial gain.
(2) There is high level of liquidity in savings. This means that you have easy access to your money at any time, but this is not true of investment.
(3) There is no guarantee that you will get your money back when you invest. This implies that there is a high level of risk in investment, but savings risk is low. In most cases savings are risk-free.
(4) When you invest, you have the opportunity to earn more money than when you save. In other words, investment generates greater return than cash left in savings account.
(5) The reason why people find it difficult to save is low income, whereas people find it difficult to invest because of uncertainty of returns.
Why Do I Need to Save and Invest?
 People save and invest for several reasons among which are:
(1) To enhance the standard of living – Savings and investment help people to enjoy the same or higher standard of living particularly when they retire from active service
(2) To acquire assets – Most people save and invest in order to acquire luxurious assets, such as expensive cars, landed property, building etc.
(3) For speculatory purpose – Savings and investments are made with the hope of making money available for future purchases with the expectation that prices of goods and services will fall.
(4) For security purpose – Another reason why people save and invest is to prepare for the rainy day. That is for unforeseen eventualities like retrenchment, sickness, and natural disaster.
(5) To raise more capital – People save and invest so as to accumulate more capital. The more capital is invested the greater the returns.
How Do I Save?
In order to be able to save, you must reduce your current consumption on food items. You do not need to have surplus to be able to save. It is recommended that to be financially secure, an individual or household should save at least 10 – 20 percent of net income with the following strategies.
(1) Every day put all your loose change into a pause or a box. Once in a while deposit the money in your savings account-. With time the money will grow.
(2) In every month, set aside a certain amount of money from your income or salaries for savings. The practice is that after paying all of the bills whatever is left is saved. This strategy of savings doesn’t really work because in most cases nothing is left over to save.
(3) Pay yourself first – This is the best strategy for savings. What it means is that you designate a certain amount of your income as your pay and pay that money to yourself before you settle your bills or someone else. This amount may be as little as N100 or a certain percentage of your salaries. You can develop an automatic way of doing this. May be, mandating your employer to make deductions of the amount into your savings account.
Where Do I Save?
The different schemes of savings include:
(1) Piggy – This is a personal home saving scheme whereby people keep money in their cupboard, safe box or under the pillow. This is a very risky way to save money because the money could be stolen or destroyed by fire. Access to the money is not restricted by any means. In those days when the banking system in Nigeria was undeveloped, many Nigerians used to save for Christmas by putting the money in a safe box. But before Christmas, in most cases the safe box is destroyed so as to have access to the money. Unless one is financially disciplined, this is not a wise way to save.
(2) Stokvel – The Stokvel scheme popularly known as Esusu in Eastern Nigeria is another traditional means of saving money. Members usually know each other well and make monthly contributions that are disbursed to individuals in turns often no interest is paid on the savings and it usually runs on a trust basis. There are usually no written agreement and no documentations. In fact there is no legal protection if a member fails to make contributions after taking his or her turn. This method is also called rotational savings and loans scheme.
(3) Thrift Collection – This method is popularly known as Akawo. It is a daily or week contribution of fixed amount of money in the hands of a well trusted individual or group. The Akawo practitioners usually move around soliciting for collections from those keen on saving. They equally give loans to contributors depending on the amount of money saved. Cases abound where Akawo practitioners disappeared with contributors’ money. This makes thrift collection method a risky method of saving.
(4) Credit Unions – Credit union are co-operatives, not-for-profit organizations that exist to serve their members rather than to maximize profit. Credit unions are member-owned and controlled through a board of directors elected by the members. They mobilize savings by collecting deposits from members, make loans and provide a wide array of other services. As member-owned institutions, credit unions focus on providing a safe place to save and borrow at reasonable rates. Unlike banks, credit unions return surplus income to their members in the form of dividend. Credit union is not open to everybody. In order to join a credit union, potential member must be part of a field of membership.
(5) Banking – Banks and other financial institutions such as insurance companiesare other means of saving money. To use this method, an individual must open a savings account with a bank and make deposits into the account. It is a safe way to save and grow your money. Interest is paid on the deposit made though at a very low rate. The customer equally has access to soft loan such as overdraft and salary advance through the banking method of saving. Bank failure could cause deposits to be lost as in the case with All States Trust Bank and Savannah Bank. But with the recent reforms in the banking industry in Nigeria, the bank is the safest place to save your money. The problem with the banking method of savings is that there is a high level of bureaucracy in accessing loan facility.
What Kind of Investment Do I Make?
There are different kinds of investments. These include – real assets investment, financial assets investment, and foreign exchange market investment.
(1) Real Asset Investment – This involves investment in physical assets such as land, buildings, motor vehicle, machineries plant and equipment, etc. It requires huge amount of capital to invest in real assets. This kind of investment has a very low amount of risk, hence its profitability is evaluated in most cases without due consideration to risk. In evaluating the profitability of real asset investment the expected cash inflows have to be estimated using historical analogy, competitive parity etc. Since a naira today worth more  than a naira tomorrow, the estimated cash inflows have to be discounted to their present values. The discount rate used for such discounting in most cases is the rate of inflation prevailing in the country. The various methods used in evaluating the profitability of investment in real assets include –discounted payback, discounted accounting rate of returns, net present value, internal rate of returns, and profitability index. But the riskiness of real asset investment is evaluated using the risk-adjusted discount rate, certainty equivalent, among others.
(2) Financial Asset Investment – This is concerned with the commitment of money for the purchase of securities such as shares and bonds in the money market and or capital market. Bond instruments are in most cases risk-free and they have short maturity period with fixed rate of interest. Interest is the only reward accruable to bond investors. But investment in shares involves a high level of risk due to market forces which are unpredictable. The reward for investment in shares is in two-fold, capital appreciation and dividends depending on the ownership status. The capital required for investment in financial assets depends on the number of units of the security one is willing to acquire. In financial assets investment, there is therefore the need for risk-return trade off. Internal rate of returns is used in evaluating the returns of financial asset investment. The investment analysis does not end with evaluating its returns’; assessing the riskiness of the investment is of paramount importance. Standard deviation orvariance is used in assessing the riskiness of financial asset investment. An investment may have a very good return but if the investment risk is equally very high, it will be irrational to make such investment because investors are generally risk averters. Various theories have been developed in assessing the risk nature of investment in financial assets, such as the modern portfolio theory, and the capital asset pricing theory.
(3) Foreign Exchange Market Investment – This is a foreign market that allows participants to buy, sell, exchange, and speculate on currencies. It is a form of investment where participants speculate on the fluctuating value of currencies between two countries. In foreign exchange market, you can be buying one currency whose value is falling and simultaneously selling another currency whose value is appreciating. Foreign exchange market investment is not a scam; it is just a market that is primarily set up for insiders that understand it. Foreign exchange market investment is usually done through the internet. If you cannot trade for yourself, you can engage the services of a broker or a market marker to trade for you. Investment in foreign exchange takes various forms, such as forex trading,  foreign currency future, foreign currency options, foreign bond fund etc. Although investment in foreign currency is quite rewarding, foreign exchange market involves a high degree of risk including the risk of losing your money. It is the most risky form of investment. Therefore before foreign exchange market investment is made, an assessment of risk-return trade off is also very important.
Conclusion and Recommendation
The importance of savings and investment cannot be overemphasized if there must be improvement in the standard of living of the people. The more cash you have coming in, the more options you have in terms of life style, ability to weather an emergency or economic downturn, and to build a war chest for future investment or business opportunities. Savings and investments guarantee your future. No matter how small is your income, you must learn to save to be able to mobilize capital towards financing investment. Whatever form of investment one contemplates, it is very important to assess the risk-return trade off of such investment either in real assets, financial assets, or foreign exchange. Savings and investments must be our life style to escape the poverty trap.
( culled from African Research Review )

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How to select the right fund manager for your mutual funds

In my previous article, I wrote about the reasons why mutual funds remain the investment of choice for new retail investors. However, it is important to be circumspect when choosing a fund manager.
Here are what to look out for before sending your money to a fund manager. 
• Know if the fund together with its manager are listed on the website of Securities and Exchange Commission. This is very important as a number of fraudulent schemes are parading themselves as fund managers. Also, this would enable you to know if the fund manager is under suspension due to breaches on infractions on regulation guiding their activities. Moreover, the weekly performance of the fund can be assessed on the website of SEC. The website is www.sec.gov.ng.
• Know if there's an online platform for accessing your fund. You don't have to necessarily call your fund manager anytime you need information about your fund. Some information like transaction history, interest, mini statement etc are supposed to be assessed through an online platform. Also know how easy it is to use the platform.
• Know how easy it is to contact your fund manager. The more the communication channels available, the better. It is necessary that fund managers have various means of reaching their clients. Such means may include facebook, LinkedIn, twitter, email, whatsapp, instagram, phone numbers and postal agency. It is equally important to know the promptness of the fund manager in responding to your inquiry. Selecting a fund manager can be a daunting task for new investors. The list of things to look out for when making such selection can equally be inexhaustible. But I believe the few listed above can go a long way in guiding beginners to make the right choice.

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Why Mutual funds remain the investment of choice

Mutual funds is an investment instrument designed mainly to gather the capital of individuals or entities that may not have the financial muscle to unilaterally plunge into the capital markets. It is also crafted to meet the needs of individuals or organisations who are interested in financial investments but lack the technical knowledge required to navigate the intricacies of the market. With mutual funds, these individuals can gather their money into a pool in the custody of seasoned financial experts who decides what instruments to invest the pool. Each individual that contributed to the pool has ownership stake in the fund in proportion to his contribution to the fund.
We have various categories of mutual funds, owing to the various assets they're invested in.
• Money market fund: These funds are mostly used in purchasing short term securities. Examples of such securities include Federal Government treasury bills, certificate of deposits, municipal bonds etc. A considerable proportion of money market fund is invested in treasury bills. Interest earned on the investment is distributed to members of the investing public that purchased units of the fund, otherwise known as unit holders. Unit holders may choose to cash out the interest or reinvest it in the fund. By so doing, they reap the benefits of compounding interest. Interest is mostly paid every quarter.
• Equity income fund: This fund is mostly invested in quoted stocks. The fund manager selects stocks with the best yield for unit holders and invest in them. Dividends accruing to the fund is distributed to unit holders. When profits are made from the sale of stocks, the Net Asset Value of the fund increases. This leads to capital appreciation for unit holders.
• Fixed income fund: This fund is mostly invested in banks fixed deposits. Mouth watering interest is earned which is distributed to unit holders according to the size of their holdings.
Mutual funds can still be categorized on the basis subscription period. They are:
• Open-End mutual fund: This fund allows Investors or unit holders to enter and leave the scheme at any time. The fund is thus ready to offer or redeem the units at any time based on their current asset values.

• Close-End mutual funds: Subscription to these funds have opening and closing dates. They are not open to new investors once subscriptions close. However, they can be traded on the floor of recognized stock exchange.
Mutual funds offer immeasurable benefits to unit holders, making it the best investment instrument for the youths. Below are some of the benefits.
• Low capital requirement: One factor that scare most young investors is the high capital requirement for financial investments. Most stock brokers require a minimum initial deposit of between One hundred thousand naira to Five hundred thousand naira for investment in blue chip stocks. Same with purchasing of treasury bills. These amounts are far beyond the reach of most Nigerians who are interested in financial investments. But with mutual fund, one can open a money market account with as little as five thousand naira. Moreover, an investor can choose to invest a lump sum or in installments.
• Mutual funds are regulated by Securities and Exchange Commission(SEC). This commission provides the regulatory framework that put the fund managers in check to ensure the safety of investors fund. They determine the minimum standard of operation for the fund and monitor their activities closely. Investors can petition their fund manager to the SEC when they feel shortchanged and the SEC has the power and obligation to sanction any fund manager breaching the provisions of the law guiding their activities.
• Mutual funds are managed by professional fund managers. Most young investors lack the technical knowledge needed to take on the complexities of financial investments. This is where the experience and expertise of professional fund managers come in. Mutual fund is an instrument through which novice investors can hand over the management of their funds to an experienced fund manager. These fund managers possess the expertise needed to analyze securities and other investment opportunities that can give the best yield to their unit holders.
• Liquidity - No rational investor want his money to be locked up in an asset. There are situations where investors in the capital market find it difficult to sell off their stake. But mutual funds investors can easily redeem their holdings.
• Steady flow of income through interest and dividends. Mutual funds usually pay interests or dividends as the case may be every quarter. Unit holders may choose to withdraw or reinvest their dividends in order to get it compounded.
I can go on and on. The list is exhaustive. The benefits of mutual funds investment especially for the youths is immeasurable. It simply provides opportunity to test the financial market and get insight how money compounds with time. It is the best way to start investment. Some reputable fund managers like Investment One Financial Services with their Money market fund (Abacus) is simply amazing. Another fund manager Axa Mansard Investment Limited with their money market and Equity income fund is still doing very well. I encourage the youths to explore the benefits of mutual funds for their own benefit and to contribute to capital formation in Nigeria.

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Why the youths need more of financial literacy

Financial literacy refers to the set of skills, knowledge and capabilities that allows an individual to make informed and effective decisions with their financial resources. Throughout our lives, we have to go through the cycle of earning, saving, spending, borrowing and investing money. However, many lack the knowledge and strategy to maximize their financial decisions.
Given the knowledge gap and lackadaisical attitude that exists towards money management and financial planning, there is a great need to develop the necessary skills and knowledge at an early age. Against this background, it is important that the youth become well informed about financial literacy for the benefit of our economic future. This will prepare the youth to successfully transit from the safety of their parents homes to the real world economy.
Financial literacy is more than just being able to open a bank account or acquiring a credit card. It is at the heart of our economic future and long term security. It includes skills such as financial action planning for the future, and the discipline to use those skills to make sound and informed financial decisions every day. It also involves knowing the various products available in our financial system and how to use them for our own benefits and to improve our national economy. Financial products are not made exclusively for the rich and working class as erroneously believed by the youth. Some products like FGN bonds, state government development bonds, mutual funds etc can be affordably accessed by the youths. Getting involved with financial products benefits the youth not only in earnings but it serves as an avenue to get deep and practical knowledge about the economy and factors affecting it. Seventy percent of those swindled in the ponzi craze that hit the country last year were students. If the students are financially literate, it would be difficult for ponzi scheme vendors to make a kill from them. Ensuring that the youth become financially capable is now widely seen as a necessary ingredient in building our economic future and stability.
Financial literacy can help us develop competencies in areas such as budgeting, credit card spending and even retirement savings. This makes sense because parents generally shy away from discussing money with their children. Some parents don't even possess sound financial literacy themselves to be able to pass the message across to their wards. Financial literacy can be enjoyable for parents if a case study approach is adopted. For example; do I want to spend money in acquiring what someone else has without thinking of the personal financial implications? The method adopted in passing the financial literacy message across is vital, and as a society we have an obligation to prepare the youths to make wise and informed decisions in this modern world. Sound financial literacy goes beyond just to 'save for the rainy days'. The financial world has become more sophisticated and complex today than it has ever been and the youths need to know early enough that a credit card is not actually free money, but one of the expensive ways to borrow money. If not used correctly, it may end up being albatross for the individual and can lead to excessive debt.
It will also enable the youth to acquire the knowledge, skills and confidence that they need, not only to be able to manage their money effectively, but to know the various avenues and means to

invest, so as to contribute to economic growth. Looking back, many of the older people today would admit that if they had possessed the skills necessary to manage their personal finances earlier in life, it would have encouraged them to aspire for greater goals and achieve more. Some of the disadvantages of not acquiring financial literacy early in life are that the individual may be susceptible to fraud or not even see the relevance of saving for retirement. Building financially capable populations has massive future benefits for the economy.
This advice sounds very simple but, having the discipline to adhere to it in our daily living is difficult. However, a strong background in financial literacy will prepare the youths for the financial realities that awaits them.

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Before you start forex trading, read this

Forex trading simply refers to making money from the fluctuations in the value of different currencies. For instance, it may take 1.812 euro to buy 1 US dollar today but may take 1.869 euro to buy 1US dollar tomorrow. In the short term, forex trading can be very speculative. It can bring fortune within a short period of time, but it can equally render you broke and depressed. 

After a long journey in the world of forex trading, I came up with the following truths which can guide anyone who want to engage forex trading as a business. 

Understand the fundamental 

There are events or factors that

determine or affect the value of a country's currency. Such economic factors like interest rate, GDP,  budget surplus or deficit, inflation rate affect the financial markets generally in the long term. Political occurrences like wars, terrorist attacks, bilateral agreements, mass protests etc affect the financial markets in the short term. Some other natural fallouts like earthquake, hurricane, tsunami and the likes affect the markets too on short term basis. It is very important for forex traders to be aware of the various impacts of these events on the financial instruments they wish to trade. We refer to these factors as fundamental because they are the underlying reasons why value of currencies fluctuate against each other. They determine the currency that gains value against the other. 

Focus on a single instrument 

Most forex brokers have an array of trading instruments ranging from currencies, commodities, Cfds, indexes to cryptocurrencies. Most of the time, unwary traders try to trade all the available instruments. This is a recipe for monumental losses. However, it is advisable   for traders to test a number of instruments on a demo account in order to determine the ones they are comfortable with. After then,  focus on that instrument and study to increase your proficiency in that particular instrument. Know the major factors affecting that instrument.

Control your emotions 

We're human. Emotions make us stand out among living things. That's why I never said eliminate your emotions. Emotion always affect our decisions especially when dealing with real money. However, it is very important to put emotions under effective control when trading financial instruments. This can only be achieved by having a plan and sticking religiously to the plan. For instance, I use weekly charts and I only place trades on fridays. I try as much as possible to avoid placing orders during the week. Financial markets is not a place to catch fun. It's a boring venture. If you're catching fun in the market, then there's something wrong about what you're doing. Don't trade on any instrument just because you have an emotional attachment to it. Trade only on instruments which works well with your trading strategy.  

Use long term timeframe 

As a retail trader, it is difficult, if not impossible to know where the market is headed on the short term. But with sound knowledge of fundamentals coupled with charting technique, a retail trader can break even and go ahead to make fortune long term. Short timeframe induces overtrading and accumulation of trading commissions eat deep into profit. Short timeframe also hasten emotion-induced trade. 

Always search for information 

Financial markets generally is always in a flux. It is highly dynamic. It is not meant for the sluggard. Staying informed is critical for survival. Participants in the markets are expected to dig deep for financial and business related information, not necessarily to place an order at any turn of events but, to understand how all those information may likely have an impact on the markets. Retail investors, or traders as the case may be, are encouraged to read business sections of newspapers and magazines, some business websites like Bloomberg, CNBC, business day newspaper etc. These resources are replete with useful insights for traders. 

Don't be an island 

Though independent judgement is vital in trading financial instruments, it is advisable to always look out for avenues to share experience with other traders. By so doing, your pool of knowledge increases. Nobody knows it all. Attend seminars, workshops and other events where issues relating to financial markets are being discussed. It is needed for enrichment of your knowledge base. 

Make it simple 

Most brokers have plethora of indicators for various trading strategies. The internet is also replete with software developers trying to sell their indicators. Most of those indicators are not needed for your success in the market. Use simple tools like Trendlines and moving average, you will see how simple, neat and less complicated your charts would be. Loading a chart with multiple indicators always make things complicated and leave the trader in a situation known as analysis paralysis. 

Avoid tips and Robots. 

The webspace is full of vendors trying to give tips about the next profitable financial instruments and when to trade. This they do without considering that traders differ in their trading strategies, risk appetite, size of capital and timeframe. The same applies to vendors of robots, otherwise known as expert advisor. The truth behind it is that if those tips and robots are really fetching high profits as they want us to believe, they would not be willing to let them out. At least not without paying a fortune. Another pitfall of using tips and robots is that they place limitation to your ability to learn and understand how the market works. 

Finally, it is important to note that trading financial instruments is not a get-rich-quick scheme, neither is it a money doubling scheme. It is not an avenue to double your capital in no time. Success in the market is a gradual process. It needs hardwork, patience, discipline and consistency. Keep on improving. Success is sure!

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Welcome! Its Simply Finance

We're here basically to galvanize the consciousness of young minds towards achieving financial literacy. This project is equally geared towards raising enlightened young Nigerians who are interested in getting sound knowledge of the financial markets in a clear, concise, simple and well analyzed format. We're here to familiarize the Nigerian youth with a wide range of financial products both within and outside Nigeria and to take them by the hands and show them how to practically explore the financial world. Investing in financial products can really be complicated, no doubt. Here is the place to make it simple. Welcome on board! It's Simply Finance!!!

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