Investing– No Longer a Luxury!
In the past, we used to see savings and investing as an afterthought. We spent what we earned and the leftover we saved or invested. Those more likely to invest were those with more disposable income or those who were spending less than they were earning. All you needed to do was to take care of yourself in the present and then the government will take care of you when you retired. Social intervention and family support schemes were very effective and readily available to help those who were struggling to make ends meet. Now everything has changed!
The situation has changed significantly to the point that government social interventions have virtually disappeared and the family network and support we used to enjoy has now been limited to the nuclear family. It is now “each for him or herself and God for us all”. To be able to meet your short to medium term goals and prepare adequately for retirement, investing should be taken up more seriously and not be relegated to what we do when we have surplus funds. It is important to understand some investing terminologies in order to appreciate why investing has become a very important component of our daily lives by juxtaposing it to the financial realities we face today and what needs to be done to improve the situation.
No talk of investment is complete without mentioning savings because that is the prelude to the whole idea of investing. You can only become a successful investor if you appreciate the concept of saving. Savings can simply be said to be consuming less in the present in order to consume more in future and its higher colleague– investing, to be the buying of assets like stocks, bonds, real estate with expectation that the assets will make money for you. Investing diligently will lead to a state of wealth creation where the individual has sufficient wealth to live without having to depend on income from employment. Created wealth become very important in retirement because the individual will no longer be earning an income.
Investing has seen a lot of modifications, changes that have been witnessed in the financial and social space. Due to inflation and a significant increase in the cost of living, investing has taken the forefront and commands so much attention that it has become an important tool for survival. Our financial realities look so grim that without the citizenry literally taking their investment future into their hands, there will be gnashing of teeth in future. For those who lose their teeth in old age, I bet teeth will be provided through investing.
The first financial reality we face today, is that our generation is not saving enough. We have become a generation used to instant gratification that it is very difficult to delay spending for later. Of the about 24 million Ghanaians, only 30% of us who save and of that number the amount saved is not adequate. The internet has played a significant role in making sure we satisfy our wants instantly. Those of us who try to drown out the advertisement noise are sadly not saving enough. When it comes to how much of salaries are saved, Ghana lags behind the likes of Kenya, Cameroun, Nigeria and Botswana.
Another financial reality facing us as a people is that we don’t have a clue about the cost of retirement and therefore it becomes very difficult to prepare for it. Retirement is so far into the future and therefore why bother now? Retirement has been termed the silent killer because at the time it hits the retiree, he or she will be helpless to do anything about the situation. It is very difficult to estimate the cost of healthcare because old age brings its own set of very expensive diseases. The number of dependents also increase because of the appearance of grandchildren and other family members, even though the children would have left the nest by then. Society also looks up to the old to shoulder some important responsibilities and our cultures also places a lot of weight on the older folks.
Directly tied to being clueless about the cost of retirement, is the lack of understanding about retirement entailment and how social changes will impact living standards of the retiree in future. In the past the system was structured in such a way that it took care of us from cradle to the grave by making sure social programs and family members were on hand to help those who fall by the side. Living expenses weren’t that high and therefore everyone got by one way or the other.
At some point in the not-too-distant past, it became apparent to governments that the take home pay wasn’t taking the retirees home and therefore the government of Ghana in 2008 decided to overhaul the nation’s pension framework. This brought about the new pension act, Act 766 of 2008, which made provision for a three-tier pension scheme where employee and employer contributions are categorized. Tier 1 and 2 are mandatory contributions from both the employer and employee. Tier 3 is reserved for private pensions and is available to both formal and informal employees with a very attractive tax advantage for contributors. What is very important about the new pension scheme is that the risk of providing for retirement income has shifted from the social security providers and is now borne by the employee with the added responsibility of making private investments to bridge the funding gap when the retirement income is inadequate.
The need to take personal investing more seriously is reinforced by the fact that a worker can be forced into early retirement due to conditions that might be beyond the control of the individual such as ill-health and accidents and redundancies. The internet and the drive to automate most of the processes makes redundancies of employee a more likely proposition and the only individuals who will survive are those who were able to invest in the summer of their lives to take care of them during the cold days.
Global AgeWatch makes the case even more compelling for investing if you live in sub-Saharan Africa. Global AgeWatch provides an overview of the progress being made in realizing the right to health of older people around the world. Their report illustrates the deficit and shortfalls in the wellbeing of older people around the world. Their Global AgeWatch Index for 2015 assessed the quality of life of retirees globally and ranked countries according to how comfortable old people are in those countries. The criteria for the ranking included capabilities, enabling environment, health status and income security. All the countries in the sub region were placed in the red. This means that if you live in a sub-Saharan Africa more especially in the West African Sub region, then one needs to look at investing for pension and old age with all the seriousness it deserves, because left to the system alone most of us will have a very troubled retirement.
What needs to be done is fairly straight forward but let me introduce you to basic money management skills. One of these basic money management skills is budgeting, which has been proven to curb overspending if followed religiously. A budget will bring a lot of discipline into a person’s finances and will make it apparent where all the money that comes in go.
Next, is to develop a financial plan for the future which will capture your financial goals, your current assets and liabilities; the development of a plan to attain your financial goals and then the implementation and monitoring of the plan to make sure the goals are achieved. Unfortunately, most people do not have the skills to undertake financial planning on their own and will therefore need a professional guidance. Anyone willing to learn how to implement financial planning can do an internet search and get a few tutorials on how it is done. It will be a rewarding experience.
Also one need to get running shoes; period! The link between investing and exercising is not so obvious but exercising will pay off handsomely in future in the way of reduced health care cost, saved time to the doctor and a general feeling of wellbeing which money will not be able to buy when you need it most.