The Earnings Component of Financial Capability: Experts Exonerated From Ignorance

> Posted by John Gitau, CEO, Kenya Financial Education Centre

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What are the sources of income for the poor surviving on two dollars a day? While every financial inclusion advocate wants to recommend savings, credit, and insurance products to the poor, offered by the formal financial institutions, there is a loud silence on the earning component of financial capability.

Could the silence be judged as complacent satisfaction that the earnings currently available are good enough? Suffice it to say that even though the current financial products do not produce income for the users, if they are well designed, they should facilitate the earning of income and certainly the use of income in money management. However, we do realize that if we want to talk of increasing income, we are onto a whole different development agenda: livelihood.

The latest Financial Diaries research in Kenya conducted by Bankable Frontier Associates in collaboration with Digital Divide Data Kenya reveal how poor Kenyans, both in rural and urban areas create and manage multiple sources of income. Each household in the research sample was found to have at least five revenue streams. This finding resulted from tracking 300 households both in urban and rural areas, studying their sources of money and all its uses over a period of one year. The ingenious income generation strategies and mechanisms revealed are quite intriguing if not to spite us intellectuals in the financial capability field.

It is easy to assume that rural households derive their income from agriculture and therefore agriculture is considered as the only income source of interest. But the Financial Diaries reveal something different. An excerpt in the reports says “Many rural households supplement their farming income with income from casual work, doing things like construction, washing, running small businesses or picking up work at clinics, schools and shops. Also, many earn their agricultural income from products that are sold in small quantities frequently like tea, milk, eggs, vegetables.

Looking at this narrative, one wonders: who teaches the poor how to come up with multiple sources of income? How can experts help? Are we to help in creating more schools, clinics, or shops to enhance labor-based revenue streams?

As if to demonstrate how irrelevant we intellectuals are in this game of income generation for the poor, the diaries continue “The median Kenyan household mediates 128 percent of its income through financial devices. This means they are constantly shuffling money into and out of financial devices such as high frequency ROSCAs or savings in the house. Some take goods on credit and pay after just a day. The day-to-day struggle is all about juggling obligations and keeping some open space to cater for needs that might arise. The result is that income is flowing into the household more regularly than we might expect and in many different kinds of potentially complimentary patterns.”

The way the revenue streams closely interface and mediate with financial devices to match day-to-day needs can only be seen as a preserve of the poor and this dimension a no-go zone for the intellectuals. As if to permanently exonerate us from lethargy and inertia in helping the poor expand income streams, the following excerpt is indeed the saving grace. It says “It is not income that determines what needs to be done rather what must be done around meeting household basics such as food, shelter and health care determines what source of income will be.” This means that need dictates the income source in a demand-driven model. Therefore, unless we live in poverty, it will be difficult to understand, leave alone help the poor in the design of income-generating opportunities.

The Kenya Financial Diaries and Ignacio Mas’ work “Money Resolutions” reveals a paradigm of income earning and money management that appears to exist only in the minds of the poor. It seems difficult to decipher unless one lives in poverty. Woe unto us poor intellectuals left with the lazy job of advising the real poor to seek financial services from financial institutions and also asking financial institutions to design suitable products for the poor.

John Gitau is an independent financial education consultant and trainer and is the CEO of Kenya Financial Education Centre, an independent centre that supports and promotes financial inclusion efforts among the Kenya poor living in low-income neighborhoods. He does that using his home grown financial literacy curriculum, Practical Financial Literacy Counseling (P-FLC) adopted from the Global Financial Education Program (GFEP) developed by Microfinance Opportunities, Citi Foundation, and Freedom from Hunger.

Have you read?

300 Households for One Year – Results of the Kenya Financial Diaries

Honesty: The New Frontier in Formal Financial Services

Beyond Giving Hope – Religion’s Contribution to Financial Capability