‘Economic Turmoil Promotes Need For Financial Literacy’

• How Families Can Survive Austerity Measures

Nimi Akinkugbe, the chief executive officer of the Bestman Games Ltd, in this interview with TEMILOLUWA ADEOYE, hints on how families can adopt financial principles and discipline to cope with financial shocks and uncertainties associated with the current economic realities. 

WITH the dwindling oil prices, the election project and austerity measures introduced by the Federal Government, it would appear that 2015 will be tight for Nigerians; as an expert on money matters, what do these issues portend for the common man and how do you think this will affect families? 

   It is clear that we face economic challenges with the decline in global oil prices, the devaluation of the naira, a volatile stock market, increased interest rates, serious security issues and a general air of uncertainty in the land. This will inevitably have an impact on the individual financial lives of all Nigerians, and particularly on those with low incomes in various ways. 

     As Nigeria is largely an import-dependent economy, the devaluation of the Naira will lead to an increase in cost of imports; this will be inflationary, as the price effects will largely be passed on to the consumer. The insecurity in some parts of Northern Nigeria has significantly affected food production; It was already a major issue that we were facing even before this latest crisis in our foreign exchange market. There is some good news however, in that the agricultural sector has made significant strides over the last few years; local production of some staples continues to increase and this may help to keep some costs relatively stable.

    As banks face higher operating costs, they will be forced to pass this on to the borrowing public. This will directly affect all business owners, particularly the small businesses who already struggle under the punitive lending rate regime as they have little in the way of reserves to fall back on.  

    As the cost of living rises, with its attendant effect on disposable income and purchasing power, the standard of living of the average Nigerian is likely to fall. It is thus imperative that we all begin to brace ourselves for some difficult times ahead and immediately start to adjust our individual lifestyles accordingly.

    An even more worrying issue is that, at times like this, companies are often forced to scale back their operations as their import and borrowing costs go up, and sales slow down; employees unfortunately tend to be the first to be affected and there is the very real possibility of salary cuts and significant job losses.

What can families with little income do for sustenance in 2015?

    At some time or the other in our lives, we will all face financial challenges.  Financial setbacks can be devastating both emotionally and physically, yet they are common occurrences that can be surmounted and even turned into opportunities with proper planning. Problems are usually temporary and even though they will not be solved overnight, facing them head on by taking immediate steps to address them, will improve the situation.

    Stay calm, objective and proactive! 

    For many people facing financial crisis, the first reaction is to panic; but that is the worst thing you can do as you will tend to over-react and may take impulsive, drastic action without careful thought that can only make your situation worse. Bear in mind that everyone is affected — not just you.

   Even though you don’t have much control over the markets, you do have control over your actions. By remaining calm, objective and proactive, keeping things in perspectiv, one can navigate these times.  Recessions or periods of economic decline can certainly disrupt your usual lifestyle. 

    Of course it is easier said than done but it is only through careful deliberate and disciplined planning that you can help you navigate difficult times and uncertainty. Effective budgeting, savings, improving ourselves through education and skill development, are what we should put in place to help us through times like this. It is important to note that all economies are cyclical and ours is no different; this cycle too will turn and even this time will pass. 

Review your financial situation

It is impossible to plan without having a realistic picture of your financial situation. In times of economic uncertainty, you should be more conscious of your spending habits. If you do not currently have a budget in place, now is a good time to do so with input from family members. When income is limited, having a household budget is not only a good idea; it is imperative. Living on a budget might sound restrictive but it is a very useful tool that can help you keep track of your expenses and where you stand financially. 

Track expenses for a month to identify any wasteful leakages. Create an inventory of your monthly expenses and categorize them along with any debt to get a complete picture of your outgoings. Prioritize your spending and focus on the necessities. 

Emergency Fund

    It is at times like this that the danger of not having any savings becomes most glaring. Having some funds in place to fall back on during difficult times is essential in order to provide for your family. The amount of cash you need to set aside depends on your routine expenses, financial obligations and your risk appetite. Naturally, if you have major ongoing obligations, you will need to have more assets set aside. 

     Experts advise that you need a six to 12 months’ worth of living expenses saved up for a rainy day. When you live on a low income, everyday seems to be a struggle, so saving to that level might seem unrealistic. But unexpected expenses come up in everyone’s lives regardless of income level, and having an emergency fund can help you meet those needs without forcing you into difficult choices. We should all strive to put this in place whatever the economic situation.

Reduce Spending

   If budgeted expenses far exceed income, you need to make some hard adjustments by cutting your expenses drastically or finding ways to increase your income. For example, if your income cannot support your rental expenses, you do need to consider moving to cheaper accommodation.

You will find that you can trim some expenses such as utility bills by being a little more conscious of waste. Most telecommunications companies have various packages on offer and you might find one that has better terms. If you aren’t technology savvy, it is time to force yourself to take advantage of the opportunities for huge savings through the use of technology in communicating both locally and internationally through whats app, facetime, skype, zoom at minimal cost. Considerable savings can be realized for both your personal and business use can be realized.

It is also a good time to review the terms offered by your service providers; Take some time to look at your bank statements; some banks charge excessively; with just a little effort you will find a strong bank that for similar or even better service standards does not apply exorbitant charges for the same products and services.

How does one deal with debts?

   If you are you in debt, try to focus on paying down the high interest debt early. If you are struggling with debt repayment, do not ignore the problem and avoid your creditors; contact them before your obligations fall due to discuss the possibility of their reviewing payment terms to give you some flexibility. Avoid increasing your present level of debt. 

How does earning extra income come into the picture here?

   Some companies may be forced to downsize and lay off staff. Try to protect your job by raising your performance level in the hope that likely cutbacks don’t affect you. If you have been consistently underperforming it will be hard to avoid being on the list.

We all need multiple sources of passive income. Diversifying your income streams can help sustain you during challenging times. Most people have some skill they can deploy to earn some extra money. What can you do effortlessly and are passionate about? Explore your skills and talents that you have ignored thus far; they may well be where your next income will come from. 

   Are you a great cook, exceptional at baking, a good photographer, do you have a great voice or play a musical instrument? Are you good at public speaking or organizing events? While job loss can be a traumatic experience, it may just be the time for change; a time for renewal.

     If you find yourself having to accept a job that you might not ordinarily have pursued before now, view this as an opportunity even if it appears to be below your skill level, whilst you look at other options more in line with your experience and credentials. There are also added benefits of learning new skills and developing what might eventually become a career or a business. 

Maintain and protect your assets; try to keep up with the routine maintenance of your assets such as your car, or your generator so that you can address any festering problems before they become expensive repairs later.

      Your health should always be a priority; have your routine dental and medical check ups when they are due. It is much easier to exercise and maintain a healthy diet than to face expensive medical or dental treatment for something that could have been attended to early on. Health insurance is a necessity; pay your insurance premiums on time so that they don’t lapse.

    It is easy to ignore these issues when you think you have more important problems to deal with. The truth is that these problems if ignored can create much bigger problems and disrupt your finances totally if left unattended to.

Do you have any assets you can sell?

   Where there is no income coming in, and little prospect of imminent income, consider raising cash by selectively selling some of your assets. If you have investments to sell, do seek advice from your financial adviser or stockbroker to critically look at your portfolio and make the most appropriate decision taking into account your overall situation.

    Apart from financial assets, every home is filled with items that are no longer used or needed but still in good condition. Put an advert on line and in the dailies if the cost makes sense; if you price your items right you will be surprised that you can raise some badly needed cash this way.

Manage emotions

When you are under tremendous financial strain, you are likely to experience a set of emotions ranging from guilt, frustration, anger and bitterness. Your reaction can have a significant impact your relationships with your spouse, your children, your extended family, friends and colleagues. Financial stress is known to be one of the greatest causes of conflict and strain in marriage and relationships so do be very careful to ensure that you don’t make things worse. Open communication is key at this time so that the burden can be borne jointly. 

     Take time out to focus on things that you enjoy doing that are not expensive. Reading, physical exercise, or pursuing hobbies all add value at minimal cost and will ease the burden. Remember, it’s not all about money. Focus on what really matters; family, friendship and fellowship.

Do not stop giving

   There will always be someone worse off than you. Continue to do what you can to support your community. Giving does not have to be financially. You can give of your time, intellect and experience even if you have no cash to spare. Do not neglect these obligations.

Stay informed

Markets are dynamic and changing all the time so try to keep abreast of what is happening. The more information you have, the better your decisions are likely to be. There is a plethora of available information so take advantage of this by reading articles, newspapers, and magazines both in print and on line media. Also seek professional advice; by sharing perspectives and opinions you will be better able to create an appropriate plan. It is easy to be discouraged by the negative news around you; the key is to remain focused on fulfilling your objectives and what is appropriate for you. 

Take advantage of opportunities

    We are all familiar with the adage: “Buy low – sell high”. Where stock prices are falling there are interesting opportunities to pick up attractive blue-chip stocks at below their true value. The same goes for other assets including real estate as some property owners may wish to off load assets to meet pressing needs. Remember that increased interest rates refer to not just lending rates but also deposit rates so do take advantage of this as regards your savings and money market deposits if these are in place.

What lessons can we learn?

   The main lesson from any financial turmoil is that it underscores the importance of promoting financial literacy to educate the public and encourage families to make saving and investing a way of life. 

    Regardless of income level, we all need to pay attention to our financial lives and adopt basic principles of financial planning. Building assets is what will provide a buffer during any financial crisis. Don’t wait until you are facing financial challenges before you put a financial plan in place, as it is this that will help you to cope with economic shocks and uncertainty.