Does anyone in Pakistan know how to save money?

Published: April 27, 2014

I don't remember learning anything about finances in schools. All I can recall is the cell drawing that I was taught to make in grade six and I don’t see how it has practically helped me in any way. PHOTO: FILE

I don't remember learning anything about finances in schools. All I can recall is the cell drawing that I was taught to make in grade six and I don’t see how it has practically helped me in any way. PHOTO: FILE I don't remember learning anything about finances in schools. All I can recall is the cell drawing that I was taught to make in grade six and I don’t see how it has practically helped me in any way. ILLUSTRATION: JAMAL KHURSHID/FILE

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

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 necessarily reflect the views and policies of The Express Tribune.

  • Middle Class People

    This is such an elitist article. Of course it is easy to save money when you earn billions of rupees a month at the expense of other people. Try even thinking of people who earn Rs. 10,000 per month and have a family to support. I urge you to read about the connection between hopelessness and poverty. After a certain point when you know you can’t break out of the vicious cycle that is poverty, you just do what you can to make your life as good as it can get in the short run.Recommend

  • Yousuf

    this is one of the better articles at ET.Recommend

  • Uzair Ahmed

    While I agree with almost all of the points you have made, it’s not as easy or simple for the most of us. A country where 50% population lives under the poverty line, the HDI ranks 0.572, and the literacy rate is below 60%, a common man cannot be bothered with things like thinking ahead 10 years into future while he doesn’t even know if he’ll be able to feed his family the very next day.

    The purpose here is not to highlight the misery of common man or present a pessimistic excuse to what needs to be done, but just to point out that things are not that simple for everyone.

    Just my 2 cents.Recommend

  • Parvez

    Nice article. As you are a banker let me tell you my thoughts which I repeatedly tell my banker…..If I got an alternative to a bank to keep my small saving in without risk and one that gave me a fair return, I would be out of the bank in a flash. The reason being that the banking system does NOT give a fair return and thus creates mistrust. The tragedy is that the pitch given outside the bank is ‘ no risk, no gain ‘…..and the bank capitalises on this. Also the blurb ‘ Islamic Banking ‘ works heavily in favour of the bank and not the customer.
    So teaching a child to manage money is good but responsibility also rests on those taking this money for safekeeping, so that its a two-way dialogue.Recommend

  • pakistani

    An excellent and well-thought idea.Recommend

  • S W Khan

    I am sorry but I really have to assume that you lack basic knowledge of Pakistan’s economy. More than 60 % live under the poverty line. Around 70% people have basic monthly income less than 6000 PKR. How would you expect one to save money when he or she has to pay for schools fees, utility bills, escalating food bills, health charges, etc. An ordinary Pakistani has to bear expenses of an average of 10 family members including elderly. Please step out of your home and see slums in Karachi, Lahore, and see extreme poverty in all the provinces.
    You want all of them to deposit their petty cash in banks. Wow! Your banks enjoy spread of 5.90 %. Its even higher than Bangladesh. You expect people to save money from an income of 61 USD. People should handover their money to these one family owned banks so that their owners and families can open new hotels in London, buy more ranches in Texas and buy villas in Dubai.Recommend

  • Usman

    Nice ArticleRecommend

  • Kamran

    Nice article. Another cool way to learn about managing money is going abroad on your own finances. It helped me a lot and today I think I am better at money management :-)Recommend

  • Iftikhar Ali

    saving money is simple, don’t spend it (if available)Recommend

  • NaughtyCaller

    Very well said Sir. Job well done

    However you could have touched a bit more on Mutual Funds etc and their double benefits especially in regards to Income Tax CreditsRecommend

  • Dr Omar Farooq Khan

    Well Said. We all need to pay heed to this advice and make sure our children have better finance understanding as compared to usRecommend

  • FA

    An excellent and a very well thought-out article. Financial literacy, I think, is very important to make a person self-sustaining. If a poor man can’t save out of his meager income, he should at least teach his children how to save and manage money to make sure that they don’t end up like him. Great idea Mustafa, keep it up. Kiiiiiyyaaa baaaat hai! :DRecommend

  • Umar

    Can you please name the restaurant you mentioned in the article regarding sales taxRecommend

  • Necromancer

    Dude trust me saving money is not good for eg look at Japan. Consumption led society is better.Recommend

  • Parvez

    Good point…….but I think his target audience is about 3-4% of the population.Recommend

  • finance

    you totally miss the point mentioned by the author

    read againRecommend

  • finance

    Most of the comments against the article, are based on the fact that people are poor

    Guess what, poor needs better financial management. Rich has already enough money to live off his life. Poor needs to plan.

    Educate the poor.Recommend

  • Prof

    Nice article.. but saving money isn’t enough. Keeping in mind the inflation rates, by the time we save enough to do anything meaningful, the saved-up amount is practically worthless.
    There is hardly any financial device that our banks can offer us to effectively save money. I’ve walked out of many banks with the same answer. It would be pertinent if the author highlighted a solution to this problem in a follow up article.Recommend

  • Gp65

    Well writtenRecommend

  • Gp65

    It is true that some people’s income maybe such that there is no possibility of saving. This article is not for those. Many poor people though do have daily income which they could save part of but will spend it on alcohol or things like that and then have to go for usurious lending when they have an emergency.Recommend

  • Gp65

    When you talk about rate in the bank not being ‘fair’ – what exactly is your standard of fair? Perhaps after taking into fact that banks proide you liquidity and zero risk of principal loss, their rate might be perfectly fair. In US we get no return for a checking accont. We keep money there due to serices we get from the bank such as use of debit card, ability to write checks, funds transfer to loved ones in another city/country at a reasonable fee and so on.Recommend

  • Parvez

    If the spread between what the bank gives and what the government would give on a government bond / security ( also risk free ) is more that 2% …I consider that unfair. Of course there is more to it but this certainly is not the forum for getting into this.Recommend

  • gp65

    The 2% seems to address he credit risk but not the services that you may receive from the bank. Of course I do not know the interest rate structure in Pakistan andthe banks may truly be underpaying – so this is merely a conceptual discussion and you maybe right on factsRecommend

  • BinteSyed

    its easy to safe the money in Pakistan…..simply control ur extra xpences….Recommend

  • Umar Shah

    Absolutely thought provoking.
    Being a society we are poor finance manger,this is reason why we are facing such problems.Recommend

  • SS

    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?Recommend