Why only 21 percent of Tanzanians save to invest

Dar es Salaam. Financial experts have emphasised the importance of striking a balance between saving for emergencies and investing for the future.

This is after a recent study indicated that only 21 percent of Tanzanians save for productive investment, while a vast majority of adults primarily focus on short-term financial stability.

The FinScope Tanzania 2023 Survey shows that 72 percent of people save to smoothen cash flow, while only 21 percent do so for productive investment and six percent for asset building.

According to the report, overriding reasons for saving have to do with living, educational and medical expenses.

The second priority, which is productive investment, includes activities such as farming and starting or expanding businesses.

Asset building includes buying, building and improving houses; buying land for farming, buying livestock or farming implements and buying transport or housing assets.

Finance and investment experts told The Citizen that the FinScope findings raise important questions about financial literacy and access to investment solutions in Tanzania.

Dr Daudi Ndaki of Mzumbe University said there is still a gap in financial education and resources needed to help individuals understand the benefits and risks associated with various saving and investment strategies.

“Many people don’t know or understand the various long-term plans such as the Unit Trust of Tanzania-Asset Management and Investor Services (UTT-Amis), Faida Fund, etc,” he said.

Dr Ndaki said it is important for the government to take financial literacy to the grassroots to help people make informed decisions on important issues such as retirement.

The FinScope 2023 Survey also indicates that 28 percent of Tanzanian adults aged 55 or below do not have any retirement plans. Institute of Management and Entrepreneurship Development chief executive Donath Olomi said while regular income plays a significant role in one’s ability to save, the culture of saving is influenced by a complex web of societal, familial and personal factors.

“Saving does not necessarily depend on income. There are people with low income, who nevertheless save for the future. A culture of thriftiness and financial responsibility should be instilled at a young age in our families,” Dr Olomi said.

The FinScope study also highlights how informal means of savings remain dominant.

Forty-seven percent of people still save at home, while six percent save with a family member.

In formal saving, 34 percent of people save through mobile money wallets, 18 percent use commercial banks and 11 percent use saving groups.

“People prefer convenient systems such as mobile money. Also, cost and location of access points are among reasons why people prefer using mobile money platforms rather than other forms of financial access,” Dr Olomi said.

The FinScope 2023 Survey involved adults (those aged 16 years or older) living in Tanzania, currently estimated at 34.1 million, or 55 percent of Tanzania’s population of 61.7 million, according to the 2022 National Population and Housing Census.

Overall, a perceived lack of income and awareness are the biggest barriers to formal financial services uptake.

The government has been addressing these challenges, specifically through implementation of the third National Financial Inclusion Framework (NFIF III 2023 – 2028).

The five-year plan seeks to improve access to formal financial services to 85 percent by 2028 from 76 percent currently.

Speaking during the launch of NFISF III earlier this month, Vice President Philip Mpango said there is a need to develop a regulatory framework and systems to improve access to formal financial services.

“We need to redouble our efforts to extend affordable shared payment infrastructure to enhance the use of formal financial services.

“There is a greater need to enhance universal connectivity, reduce reliance on cash transactions and expand efficiency and competitiveness within the financial sector in Tanzania,” Dr Mpango said.