Experts warn against higher poverty rate as families dump savings

Economists have warned that the current spending pattern adopted by households as a result of the rising inflation rate in the country which relegates savings and investments to the background could lead to a higher poverty rate.

Reacting to the recent Household Expectation Survey, published by the Central Bank of Nigeria (CBN), they said failure to save could expose the people to economic shocks that could worsen the poverty situation in the country.

The report by the CBN showed that households are spending the largest chunk of their income on food and the trend could last till the end of this year and possibly extend to next year if inflation should persist.

The report further shows that Nigerians spend 54.9 per cent of their income on food and other household items on medical expenses, while making no provision for savings or investments.

The complaint is that prices are so high, that their income is not enough to provide for their daily needs, especially food.For over two years, Nigeria has experienced a consistent rise in headline and food inflation, hitting 33.40 per cent and 39.53 per cent respectively in July.

The rise in inflation forced organised Labour to push for an increase in the minimum wage as the current N30,000 minimum wage has been eroded by inflation. They succeeded in getting a N40,000 addition which brings the minimum wage to N70,000.

Inflation in the country is driven by high energy costs which result from the removal of fuel subsidies and insecurity that has kept farmers away from their farms.

Prof Godwin Oyedokun, a professor of economics at the Lead City University, Ibadan, said the current spending pattern adopted by households could expose them to financial insecurity and make them vulnerable to financial shocks, such as job loss or unexpected expenses.
He said failure to invest can limit the people’s future wealth accumulation and opportunities for economic growth.

“It can also make households rely more on credit, potentially leading to debt burdens and financial difficulties.

“The country is also at risk because lack of savings by citizens hinders economic growth. A high savings rate is essential for investment, which drives economic growth. Low savings can limit investment opportunities and hinder long-term development. A decline in domestic savings can limit the availability of capital for businesses to invest and expand.”

He advised that while the government should step up its fight against inflation and bring down prices of essential goods, families should begin to develop a detailed budget to track income and expenses and identify areas where spending can be reduced.

“Every family should allocate a portion of its income to savings, even if it’s a small amount,” he said, adding, “Consider automating savings contributions to make it easier. Reduce non-essential spending by identifying areas where you can cut back on spending, such as dining out, entertainment, or unnecessary purchases. They can also seek additional income by exploring opportunities for part-time work or side hustles to supplement their income.”

In his reaction, Lead Director of the Centre for Social Justice (CSJ), Eze Onyekpere, said economies are set on the trajectory of growth when a reasonable part (not less than 30 percent) of earned income is saved by households and businesses.

He said savings replenish the capital stock needed for investment which produces new value, returns on investments and generates economic growth, employment and sustainable livelihoods.

“A culture of saving also indirectly facilitates the moderation of inflation when excess liquidity is restrained from directly overheating the system and even though unsterilised like the cash reserve ratio, is not used in creating a demand of excess money for a consumption basket of goods and services, rather, it adds value,” he said.

For him, a situation where the people can no longer save for the future calls for urgent attention as that could push more people into poverty while the country continues to struggle for survival.
Onyekpere said Inflation must be tackled by the governance authorities in its fiscal, monetary, trade, labour, industrial and other policies, not households.