Personal finance lessons as pandemic unravels

It is difficult to find anything that has not been adversely affected by the Covid-19 pandemic, save for the enforced comfort and safety of our homes.

If there is anything to learn from previous humanitarian crises, populations are hardest hit from a health and economic dimension.

Weeks since the first Covid-19 case was made public in Kenya, families have been plunged into unprecedented situations.

Many people have been detached from their families and placed in compulsory quarantine to stop the spread of the pandemic. There is general apprehension over how it will all end, on the health front and economically.

Many families have seen their members lose jobs (temporarily or permanently), take significant pay cuts or deal with loss of incomes, with industries staring at subdued demands or shutdown.

The International Labour Organisation (ILO) estimates that as many as 25 million people could become unemployed globally, with a loss of workers’ income of as much as $3.4 trillion.

Regrettably, businesses and families will have to continue managing this indefinite “new normal” as best as they can until the worst passes or until an effective antidote is found and the economy begins to recover.

Understandably, while a human crisis of such proportion demands our immediate attention, it is vital not to let this ongoing crisis pass without contemplating how well we were (or were not) prepared in strategic terms. From a healthcare or economic perspective, was Kenya prepared for the pandemic?

From a healthcare dimension, in containment of the virus, visibly good and aggressive response continues to be seen. Notwithstanding, the veneer of our healthcare system, investment in health insurance or lack thereof, has been exposed. As of 2016, a Ministry of Health study showed that medical bills were a key contributor to poverty in Kenya, with an estimated one million Kenyans driven into distress each year by unaffordable medical bills. Further, World Bank data illustrates that approximately four out of every five Kenyans lack access to medical insurance. These are grim statistics, a damper for the health insurance sector that should drive policy makers and private sector players to seek a top-down, universal solution.

Inability to afford medical insurance is a function of low levels of financial inclusion and is potentially a great opportunity to support people affected by crises. Financial inclusion allows households to build assets; mitigate shocks related to emergencies, illness or injury and make productive investments.

Financial literacy, which is the ability to make judgements and take effective decisions on financial management, is the demand side of financial inclusion. It is an important requirement for functioning effectively in modern society.

Surviving Covid-19 in the long run will require knowledge to help people better manage their finances through this financial emergency.

A pro-bono financial literacy training service, Mind My Money, launched by Heritage and Liberty Insurance in the market last year, seeks to equip workplaces and individuals on prudential financial management while cushioning them in times of emergencies.

In the immediate phase, the lesson provided is the wisdom of having an adequate emergency fund as a form of financial insurance for worst-case scenarios.

Building an emergency fund is the first thing one needs to do in financial planning, even before one starts investing for the rainy days.

Due to the government-enforced isolation and restrictions on travel, the price of essential goods like food, masks and sanitisers is likely to shoot through the roof. Expenses like housing, transport, medical bills, remain a standing charge on household expenditure, calling for a masterly re-adjustment of the day-to-day budget. Kenyans will need to get more frugal on must-haves versus their wants and see what to cut back on.

During this time, Kenyans must avoid unnecessary debt and review payment plans into existing credit contracts, in order to underwrite stability into an already uncertain future. Laudably, the financial sector is already providing scope for this.

Ultimately, as the majority of the Kenyan workforce soldiers through the crisis in isolation, both employers and employees will be in a better place, familiarising with the fact that remote digital-based work, which is fast gaining cadence, is here to stay. Broadly, Covid-19 may prove to be an iconic tipping point for the digital transformation of the workplace.

It was Niccolo Machiavelli who first said, “Never waste the opportunity offered by a good crisis.” Let us learn from this historic moment – as we endeavour to stay safe and alive.

Mr Kioi is Managing Director, Heritage Insurance Kenya and Mr Munda is Managing DirectorLiberty Life Kenya.