Money handling requires knowledge and skills. Especially in such countries as the republics of Central Asia, where, according to various estimates, almost one third of population live below the poverty line.
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«Money handling requires knowledge and skills. Especially in such countries as the republics of Central Asia, where, according to various estimates, almost one third of population live below the poverty line».
This is a very appropriate statement by the guru in financial sphere, Robert Kiyosaki, in today’s difficult time. The second wave of the pandemic, political events, consequences of the lockdown have shown the importance of budget planning and savings.
In Kyrgyzstan, in the age of digitisation, financial services grow at a rapid pace, but the level of financial literacy remains low. Such a large gap between the demand and supply creates a bitter misunderstanding of the country’s economic development, whereas financial crimes gather pace based on illiteracy of local people.
Financial pyramids, fraud, inability to pay off loans, constant lack of money, empty pockets, endless debts – all these are the consequences of financial illiteracy and lack of budget planning. The situation is worsened by the fact that financial literacy classes are not included into curricula today.
How to save money if you are on a low salary? Why is it important to be financially literate? How to find additional financial income and save money for a rainy day? Let’s find out.
This is an ability to augment and spend your money properly. In this sequence only. Financial literacy means the ability to augment your money savings and to run only reasonable and essential expenses. Only after you make sure that these expenses are essential and you give your money for a commodity or a service at a price most favourable for you.
Rule No.1. Your budget and budget planning
Every family should track down their budget, i.e. expenses, income, as well as financial reserves that will be necessary for unexpected circumstances, or the so-called financial safety cushion.
Why do you need to track down your budget? Not to remain empty-handed if your lose your job or in other circumstances. You must know the amount that you need for your everyday life, for example, for a month if you rent an apartment or your salary is your only source of income.
Rule No.2. Spend less than you earn.
Do you want to become financially independent soon? Then, this rule is for you. Thus, if you follow this rule, you’ll have two advantages immediately: you will not run into debt, and you can save certain amount as your reserve fund, thus creating a source of passive income.
Rule No.3. When planning a budget, satisfy your basic needs first.
According to the Maslow’s hierarchy of needs, the list of basic human needs contains the ones that are related with physical survival: needs for food, water, shelter, sex satisfaction, sleep and oxygen. Therefore, you should think over your budget for food and accommodation one month in advance.
Rule No.4. Don’t be victims of advertising and do not make spontaneous purchases.
Do not make purchases that hardly have appreciated value. Can you do without this thing? If yes, don’t waste your money on it.
Rule No. 5. Learn to save.
Make «smart» purchases – study the market and check where you can find a commodity at a lowest price. Do not take the commodity you see for the first time. It’s market economy here, and you can always get the most profitable offer.
Moreover, in the age of digitisation, there are many discount programmes, cards and other things that make the process of buying easier.
Rule No.6. Seek sources of passive income.
In the age of technologies, it’s not necessary to have three jobs in order to have additional financial reserve. Study the financial market in order to invest your money. It can be:
- a deposit account with a bank,
- securities,
- profitable startup,
- currency operations.
Rule No.7. Secure your savings.
Study the banking sector – where is it more profitable for you to keep your savings? Using cashless payments is comfortable, but keep in mind that there are hackers who can hack the system. The way out is to keep your money in various reliable banks, and leave some money in cash.
Control over your incomes and expenses is the very first and important step toward your budget planning. You can save a minimum amount of money to gather statistics and start analysing it at once.
Say, a young girl Aisuluu lives alone in her apartment and has a salary of 35 thousand som (426 dollars). Let’s keep track of her monthly expenses as she does not have other sources of income:
- food – 3,400,
- transport – 600,
- entertainment – 4,000,
- sport – 2,500,
- beauty and health – 3,000,
- apartment and utility bills – 888,
- clothes – 5,000 som.
Thus, Aisuluu spends 19,388 som (236 dollars) per month on herself. Also, she has 15,612 som (190 dollars) left at hand.
Thus, compiling the table of her monthly expenses, she can see deviations from her expenses in percentage points. The girl has all chances to cut her expenses, thus saving some money for investment.
The financial safety cushion allows its owner to live a part of their life without the need to have the principal source of income. For example, in case of move to another country or dismissal. Moreover, the life of such a person will not change drastically since he or she can still live comfortably, indulging in every pleasure.
However, this method of saving has its own rules:
- financial safety cushion must be available for 3 months to 3 years;
- more than one year can be spent to create it;
- at least 10 per cent of income should be saved every month;
- one should determine where to keep their savings: deposits, securities, etc.
Thus, Aisulu with her salary 35 thousand som can save 10 per cent every month to create her financial safety cushion. So, her monthly reserve fund will be 3,500 som.
We have already counted that her monthly expense is 19.3 thousand som. This is the amount she needs to maintain her comfortable life, i.e. she will need 115.8 thousand som for 6 months. If Aisuluu saves 3.5 thousand som every month, she will create a reserve fund for herself for six months. If she wants to create the reserve fund sooner, she will need to increase the percentage of monthly savings.
It is a complex task to save money on a small salary. However, it is quite real. It is based on budget planning, or, to saving, to be specific.
Here are a few advices on how to save money on a small salary:
- Set a goal, for example, buying a car;
- Keep home banking;
- Go to stores with a list and never go hungry to stores;
- Use public transportation;
- Pay for your purchases with cash only;
- Try to eat at home;
- Cook your dinner at home;
- Use discount cards;
- Cut your entertainment and clothes expenses;
- Break your bad habits.
According to latest update of the National Statistical Committee of the Kyrgyz Republic, the lowest salary in Kyrgyzstan is 8-10 thousand som (121 dollars). In theory, one can save money on such a salary, provided that the one has their own apartment. For example, novice medical worker receives 10 thousand som as salary. If we consider that the minimum salary, according to the latest data, is 5.2 thousand som (63 dollars), plus public utility and taxes, it is possible, in theory, to save money but it will be very difficult.
Passive income is money earned from non-labour activity or money for work done earlier. For example, 5 years ago you bought the apartment and now let it out to tenants. Thus, you receive monthly payments in addition to your principal salary.
There are a few sources of passive income, namely:
- Bank deposit is the most relevant and available way of investment. You give a certain amount of money to the bank, mainly, large amount, and the bank pays you the interest every month.
Advantages: high reliability and monthly income.
Disadvantages: Low yield and money freeze for a long term.
- Savings account is a profitable investment, too. You can place your savings with the bank, for example, 100 dollars (this is a minimum amount in the tariff “Savings”) and place your savings with the bank every month and the bank will allow interest on your account.
Advantages: Protection of your savings, including from yourself
Disadvantages: Low yield
- Non-governmental pension fund – passive income on pension. You enter into agreement with a non-governmental pension fund and make regular contributions, while the NGPF, in turn, invests your money for additional source of income on pension. When you reach the necessary age, you can get your savings. It’s a profitable offer, especially given the low rate of pension in Kyrgyzstan.
Advantages: Yield can be high
Disadvantages: Such contributions are not insured, and there are no guarantees that this money will be returned in case of a bankrupt NGPF.
- Securities – a good source of passive income. But there’s a big disadvantage – Kyrgyzstan has underdeveloped stock market.
Bonds – debt securities issued by the state or a company that raises money. You buy a bond and thus lend your money, and instead the issuer is bound to pay you a certain income.
Advantages: minimal risk
Disadvantages: low yield
Preferential shares – a special type of shares that entitle to demand dividends or repay credit upon company’s liquidation.
Advantages: minimal risk, stable payment of dividends, the share is returned upon the company’s liquidation.
Disadvantages: The issuer may demand the shares back from the shareholder, no voting right.
Share investment funds – a ready portfolio of securities is provided to you and you can buy a part of the portfolio.
Advantages: Minimum amount of deposit.
Disadvantages: No guarantee of income.
- Investment insurance – the agreement between you and insurance company for 3-5 years and money deposit. Upon expiry, you get back your deposit and investment income.
Another kind of passive income related to the bank sphere – currency investor. This kind of income has become very popular because of the sharp growth of dollar to 82 som, which is profitable for currency investors. The idea is that you deposit a certain amount, for example, in dollars and in case of the profitable currency rate, your earn more.
Advantages: Very high yield is possible.
Disadvantages: No warranty.
In Kyrgyzstan, another popular kind of passive income is the renting out real properties: apartments, houses, offices, warehouses, container on a market, etc. But this kind of earning will require more than one year.
The next popular kind of investment is participation in promising startup projects. If a company makes a breakthrough to the market and becomes a successful player, you can earn well.
Another kind of passive income is not very popular, but it is available – creation of intellectual property. The created invention, book, song, video, etc. earn profit. The owner receives the royalty afterwards.
Because there was no awareness raising campaign at the governmental level. But more work has been done in this regard in recent years. In 2016, Kyrgyzstan approved the programme for improving financial literacy of the people until 2020, developed on the basis of the 2014 research, whose results showed a low level of financial literacy of the people. The key purpose of the programme is to improve the level of financial literacy of people and the culture of financial behaviour of citizens.
According to the National Bank, the regulatory authority jointly with parties concerned constantly publishes special thematic booklets for adults, distributes short videos that explain the key topics of financial literacy (such as family budget, inflation, exchange rate, functions of NBKR, loan transactions, payment systems, financial fraud, etc.).
In 2019, NBKR, with the support of GIZ, launched the updated website of financial literacy, Finsabat, which offers users various content (for example, loan calculator, deposit calculator, bank rates, financial literacy tests, training videos, etc.). Also, NBKR actively distributes relevant content via their website and social media.
Also, Kyrgyzstan regularly takes part in the annual Global Money Week and World Savings Day (October 31); 18 of 24 banks take part in these events since 2014. Since 2016, 1,800 and more events were organised under this global campaign, and over 300 events were organised under the World Savings Day. More than 190 thousand children and adults took part in these events.
In recognition of its attempts to improve financial literacy, in 2016 Kyrgyzstan was among finalists in the category “Country Award” in the contest for “Global Inclusion Award” established by the Child and Youth Finance International (CYFI). In June 2019, the Kyrgyz Republic represented by NBKR was awarded by CYFI for the involvement of young people into financial education programmes.