Weekly Column: African financial Planning

By Samuel Chamboko – The most popular way of financial planning for most Africans is sending your children to school so that they can support you in old age. While from a very social point of view it helps maintain family bonds and keeps families together, it is very much in contrast to the western forms of financial planning, and a huge drawback in progress towards financial emancipation. A lot of Africans, at home and in the Diaspora, support their parents and siblings financially. While a lot of good can be seen in all this, I’d like to point out some of the short comings of this form of financial planning, especially on the part of the benefactors, through various illustrations.

A couple of years back, a friend related to me what an employer had said to him. It so happened that the day he (my friend, let’s call him Young Black Professional-YBP) had joined an apprenticeship type programme, a white trainee (we will call him Young White Professional-YWP), also joined. The employer then told YBP that both of them would one day leave the training establishment, qualified and highly skilled individuals, but the YBP would never be able to command a salary as high as YWP. YBP then probed further as to why this was the case. The employer then told YBP, that the first thing a young black professional fresh out of training is offered is a car and with it comes a reduction in the financial compensation, on the basis that ‘we are giving you a company car’, even though in most cases the job entitles you to one. YBP will jump at the opportunity of having use of an automobile, as in some cases, he might be the first in his entire clan to achieve such a status. On the other hand the YWP will not be excited about a car because he has had a car at his disposal since he was 16. He will press hard for a good financial package and thereafter the disparities between the two starts to increase.

Over and above this, YWP does not pay rent. The family trust, owns a one bedroom apartment which he will inherit when he turns 25, so there is another saving for him. It should also be mentioned that the same family trust paid for his university fees, so he does not have to repay any educational loan for the first 5 years of his working life. Another saving for him. On the other hand, the relatively lowly paid YBP has to pay rent for a decent apartment, to go with his newly acquired status, repay the student loan and send money home monthly. While one can understand the circumstances that generations before us were in, the question is, are our generations going to allow this sort of financial planning to continue?

I will draw another illustration, say the average YBP college graduate leaves college and starts their first job at the age of 23. (I’m going to use the way of life in the Diaspora to illustrate). At 25 gets married and at 27 they manage to get a 20yr mortgage bond to buy a property. I will assume that this average YBP only makes it as far as middle management in the organization that he works for, and will retire at age65 as a middle manager.  Up until the time he is 47, he has the following financial responsibilities: paying the bond, sending children to school right up to University, funding family holidays, and making sure that the family’s basic needs are taken of.  Bearing in mind that these are one’s most productive years, he also needs to save for life after retirement while at the same time sending money home to the ageing parents and in some cases siblings who have made it their vocation to leach off other siblings. The question I would like to pose is that all things being equal, will YBP be able to live a decent lifestyle after he retires at the age of 65, without having to depend on his children? What this does is it makes the cycle of financial dependency continue for generations after we are gone. It makes it difficult for us to unshackle the chains of financial dependency, given the responsibilities we bestowed on us and ones that we take up on our own accord.

One sub-issue that particularly riles me is that of sibling-financially-dependent-on-other-siblings. (Maybe because I never had an older sibling to be dependent on). Here I am talking about siblings at home and in Diaspora who don’t work, and seemingly have no plans to or actually no plans at all. They basically wait with every single month for a brother or sister to send them money to get by. If you notice they have a penchant for the finer things in life, designer clothes, watches and handbags, they also love going out every weekend to show-off the new clothing apparel they recently received from ‘my brother in the UK’. They love living large, but have never broken a sweat even to buy the underwear they are wearing. Is this the correct way of assisting our families? I’m of the opinion that everyone has a God-given talent, surely they can do something with themselves to earn an honest living. Instead of shelling out money to enable them to go to nightclubs to ‘floss’, why not assist them in enrolling for a course or some sort of training, that will help them help themselves, or help them set up businesses. The good thing about all these things is that they have visible or tangible milestones that can be used to assess if the beneficiary is using the assistance in the way they are supposed to, leading to withdrawal of assistance if the other party is not keeping their side of the bargain. In an exaggerated sort of way, financially assisting someone is financially draining. The opportunity cost is the savings you could making from that money and it won’t be surprising to find oneself in the same situation as the beneficiary sibling after years of hard work and unrivalled generosity. If you are helping siblings, give them targets and make the assistance limited to a specific conditions and time frames. A bit of tough love is necessary otherwise this dependency syndrome will not go away.

My main concern this week has been, after a lifetime of blood sweat and tears, long hours at the jobbing place, will one be financially independent, on retirement, maintain the same lifestyle? Are we planning beyond our next pay cheque? Matters financial should, as much as possible, be devoid of any emotion and sentiment as these can hold us back immensely. The issue of offering financial assistance to family is one which should be handled very cautiously as it can have debilitating effects on the financial well being of the benefactor. The financial freedom that YWP enjoys, in the earlier illustration, enables him to plan beyond his working life easily, even to plan set-up trusts for his grandchildren to inherit, but for YBP, the family responsibilities (or obligations) are worse than being in debt. Will he ever be able to set up trusts for his children, let alone his grandchildren, to inherit?