Oh, it's January again: Saving to beat the January School “Fee-ver”

Does the beginning of the school calendar bother you so much? If your answer to this question is yes, then one thing is true about you: you are in need of “financial security”. This means that you fall in the category of people without an appropriate financial plan and enough financial resources to adequately cater for some of your needs or to support an expected standard of living now and in the foreseeable future. You are living in a hand-to-mouth consumption pattern. You are not alone in this situation, if that will be of comfort to you, although it shouldn't.

This problem could be as a result of a poor savings culture on your part and for your community as a whole. Generally, many Zambian communities have poor savings culture. According to the 2009 FinScope consumer survey, about 63% of Zambian adults do not use any financial products at all to manage their financial lives and 86% are unbanked. How then is an average Zambian household living in a community without values to support saving expected to strike financial security?

Many Zambian households are already in a dilemma to find money to sponsor their children's school requirements as schools open on 12th January 2015. To illustrate this dilemma, I will by permission use an example of one of my friends, a medical doctor by profession who I will call Dr. Chalala. Dr. Chalala is married to a pharmacist and together they have 5 children: 1 in nursery, 3 in primary and 1 in secondary schools dotted around Lusaka. This working class couple has always struggled to meet the school requirements for their children under a “free education for all” policy framework. Their recourse has been debt with friends and banks alike. They are usually indebted for most of the first 6 months of the year. The positive thing here is that they are able to borrow and pay back, though with interest. Their social support system has also been good thus far.

It is very tempting to think that the situation that Dr. Chalala and his wife face when it comes to financing their children's education is normal and expected of a family with five children. If the Chalala household were to continue managing their children's education in this manner indefinitely, what do you think would happen to these children if any or both of these parents were to face an early rest from their life pilgrimages on earth? I am sure your thought is as good as mine.

The education of a child is not an undertaking that any parent should pursue in a happy-go-lucky manner. At global level, governments had to set a target to achieve Education for All by 2015. This is because they recognise that education is the primary determinant of development at both individual and national level. One key factor that will cause the convergence of opportunity for a Zambian child with that of a child from the developed world is quality education. Zambia has many schools that are capable of offering that kind of education with excellence. Some of these are private schools which are only accessible to individuals who are willing and able to pay a premium. The logical question then would be: how many households are able to afford a good schooling opportunity? Can the ordinary folks in less

lucrative jobs manage to educate their children especially if a medical doctor like Dr. Chalala and his pharmacist wife should struggle to finance their children's education?

Let us explore the available options by which households could finance their children's education. We will start with debt. It is not uncommon in the contemporary world to observe people sinking to the depth of debt especially in the developed world or poor people failing to meet the most basic of needs particularly in the third world countries like ours. In the developed world where access to finance is very high, personal debt has reached record high levels. In the UK for instance, average household debt excluding mortgages at the end of November 2013 stood at £6,016 - approximately K50,000. Debt gives an opportunity to spend your future income now but at a cost called interest. In addition to the interest, you also pay a fixed fee for the loan facility. The disadvantage with debt is that it comes with a financial as well as a psychological cost. The psychological cost is the dependency that many users tend to develop. The debt option also robs the households of an opportunity to start saving for the future.


The most defensible alternative to debt as a means of securing the education of a child is saving. Saving requires good planning and management of personal finances. If a household is to avoid a 'hand-to-mouth' consumption practice, some form of savings must be practiced starting from the earliest age of earning an income. This must start way before the child is even born, in the early stage of the accumulation phase of the financial lifecycle of an individual (20 – 29 years). Strange as this may read, that is the best way we can create financial security for our children's education. Without access to education and information on managing personal finances, many people do not know where to start financial planning from given their income constraints. I personally lost some of the opportunity of the early accumulations phase due to lack of knowledge and I have attempted to make an impressive recovery. We will revert back to the issue of saving in a little while.

Willed wealth is another opportunity that some people who are born with a silver spoon in their mouths could use. It must be understood however, that this is a result of the sacrifice made by others before us to save and create financial security for us and our children. There is no reason why we should not do the same as well.

The last option and perhaps the most common in the rural areas is investment in the real sector. The disadvantages of this kind of financial security planning include the substantial management requirements which may not suit the working class and liquidity management which is a common problem for real sector investment. In the rural areas again a pseudo-financial initiative that could be used to save for children's education called the village savings initiative has evolved to take care of the savings service gaps. Let us now revert to the idea of saving and consider the conditions necessary for one to build up some savings. I will start by stating that except for willed wealth, all the other stated above options require fulfilment of a few basic conditions. Some of the conditions that must be met are (1) a clear dream/vision, (2) boldness to make tough decisions, and (3) self-restraint.

A clear vision is necessary to guide planning and decision making. Boldness is essential because some decisions that will ensure that we are able to attain financial security come with a lot of sacrifice and thus they are not easy. Selfrestraint refers to the discipline required so that one does not for the easy route after a few months in the experience. The sacrifice of the immediate saving decision is unbearable when the ultimate is not envisioned; therefore a family person needs a clear vision for his/her family. With regards to debt, the associated legalities compel the debtor to considerately manage conditions 2 and 3, but still, the first condition is inevitable.

What are some of the practical ways that one can save for a child's education? In the formal channels, banks and insurance companies offer the most secure financial services. There are financial services tailored to meet the education needs of households ranging from ordinary savings accounts to micro insurance services. I must hasten to say though, that financial institutions in Zambia have demonstrated very little initiative in structuring fit for purpose financial products especially for education financing compared to other countries. In the US for instance, there are several financial services that households could use to make it easier to save for their child's education. These are services which can be sponsored by states or institutions of higher learning, to encourage

saving for future college costs, and the earnings grow taxfree. There are two main types: “pre-paid tuition plans” where a child's college tuition can be paid based on today's costs and “college savings plans” which allow parents to invest money in several investment funds, ranging in risk level, to pay for a child's college education. Their concentration on private financing arrangements for college education is mainly because public education from kindergarten to high school is universally available, with control and funding coming from the state, local, and federal government .

I introduced Dr. Chalala and wife to a number of financing options that included baby endowment schemes offered by some of the local insurance companies. He was astonished to learn that such services existed. Without much delay, the couple signed up for a tertiary education endowment plan for the youngest two of their children. These products can be accessed for as little as K100 every month. Dr. Chalala and wife opted for the one that will endow their 2 children with K70, 000 and K50, 000 at their respective eighteenth birthdays, when they are expected to start their tertiary education. The endowments include the amounts saved plus interest earned. Of course, these endowments are computed in nominal values and they will be good for as long as certain macroeconomic fundamentals such as inflation and interest rates remain stable. The monthly contributions are about K280 on each plan. This couple can certainly afford this kind of saving. .

The savings problem is not for households only. It is much a problem for the banking and non-bank financial institutions as well as government. Large educational financing gaps still exist and these require innovative individuals and institution to arise to the occasion and fill. Above all, consumer awareness creation and product innovation on the part of the providers require rampingup. The product range must be tailored to cater for all consumer categories such as those intending to start a family, those with younger children and those with older children. There is a lot of opportunity for benefit on both consumer and the financial institutions in this. It is without doubt that households that start saving for their children early enough can enjoy financial security and will be able to educate their children with relative financial ease.