From Africa to America, Low Savings Rates: Similar Ailment, Differing Solutions?

As the Program Associate for both the larger Asset Building Program at the New America Foundation, and the Global Assets Project, which is a joint New America-Center for Social Development venture, I sometimes feel like I have a foot in two worlds.

I’ll give you an example. In a widely-circulated column last week, The Next Culture War, the New York Times’ David Brooks asserts, in a nutshell, that it’s time for a culture shift in America- a shift in the way we think about consumption. He reviews the thrift-oriented nature of America’s past, and laments the materialism that characterizes U.S. society today. Brooks further highlights the misdirected nature of today’s debate around morality and values- one that focuses too much on, say, prayer in school and theories of evolution, rather than taking on the economic values of a society that encourages excessive consumption.

Meanwhile, I’m in the midst of doing desk research for phase I of the multi-partner youth savings pilot project, of which the Global Assets Project is a part. While trying to find (in vain) the average savings balance per account in Ghana, I stumbled upon this article in Africa Renewal, a publication of the U.N., on boosting domestic savings in Africa.

Sub-Saharan Africa has, unsurprisingly, the lowest savings rate in the world, with a gross domestic savings rate of around 18% in 2005. And it’s for reasons that may or may not seem obvious:

– Inadequate financial services: only 20% of African families have bank accounts. Large distances to banking institutions are a major factor, as bank branches are few and far between. Ethiopia, Uganda, and Tanzania, for example, each have less than one bank branch per 100,000 people;

– High minimum deposits and balance requirements;
– Considerable amount of documentation required, which many Africans do not have;
– Little incentive to save, due to low interest rates on savings in formal financial institutions.

As a result, banks tend to have fewer resources to make loans, and therefore charge high interest rates.

Samuel Gayi, a senior economist on Africa at the United Nations Conference on Trade and Development (UNCTAD), stated that while many households do hold savings, “The problem is that these are being held in the non-financial form. These are not being significantly channeled into productive investments.”

How can Africans begin to exploit these assets? Gayi believes that what is needed is to “introduce new financial products or instruments that respond to the saving needs of households”; ones that “permit easy accessibility” and allow for “small transactions at frequent intervals.”

This is what the Global Assets Project, along with its partners at Save the Children, CGAP, and CSD, are aiming to do, with its pilot project to initiate youth savings accounts in three respective African, Asian, and Latin American countries. While the selection process is still underway on the ground, its aim is to get young people to get in the habit of savings, with help from a savings match.

So while the discourse surrounding development in Africa has focused on ways to mobilize foreign assistance, it cannot afford not to think about bringing more accessible financial services, and about mobilizing savings, to the continent.

And I couldn’t help but think that the juxtaposition of these two issues- low savings rates in the U.S. and Africa- could serve as a valuable lesson for Americans. Because while we have a hard time keeping money in the bank, most Africans don’t save because they don’t have access to the bank in the first place.