Skip to content 
According to a report by NTV Kenya, about 14 million loan accounts were blacklisted by the Credit Reference Bureau (CRB) by February 2021. So, while the number doesn’t represent the exact population of Kenyans on the Credit Sherriff’s black book, the number couldn’t be far from that, thus the subject of financial literacy in Kenya.
Another report by the Star shows that 60% of households in Kenya buy food at one point on credit, and 62% are in rural areas. These two statistics and many others show how dire the Kenyan borrowing craze is, and we can only describe it as a lack of financial literacy.
According to American economist Alan Greenspan, “the number one problem in today’s generation and the economy is the lack of financial literacy.” That’s what’s happening to Kenya today.
But what is financial literacy? Why do we need it? What are the risks of financial illiteracy? How can we bridge the financial literacy gap?
Let’s discuss these four concerns and many others.
What is Financial Literacy?
Financial literacy refers to the awareness of how to spend and manage money and how to use it to secure your financial future. It’s all about understanding basic financial concepts such as the time value, compounding effect, and the opportunity cost of money.
Financial literacy can also be defined as measuring the pros and cons of making specific financial decisions and being able to decide. Or you could say it’s using financial skills like budgeting, investing, borrowing, and personal finance management.
According to American blogger Lindsay Mills, “financial literacy begins the process of earning more for what we know and less for what we do.”
And according to American businessman Tim Pawlenty, “financial literacy is an important part of avoiding financial mistakes and planning for a strong, secure financial future.”
What are the Consequences of Financial Illiteracy?
The lack of financial literacy is what we call financial illiteracy. So, what are its effects? Essentially, financial literacy breeds several challenges, notably:
1. Inhibits productivity
Without financial literacy, it’s hard to become productive as a person. You cannot make a better financial decision to improve your net worth. You become too complacent with what you are making and unwilling to take the risk.
Best-selling author Myron Golden argues that “if you want to become wealthy, then you have to find out what the top 5% of people do financially and do the same thing.”
You don’t become wealthy by following the trend of the majority but by being bold enough to follow the minority.
2. Inability to assess financial risks
While taking risks is part of the financial journey, you must assess every risk. Failure to do that will only put your investment in jeopardy.
You’ve to take calculated risks. Weigh them to determine if they are worth it, and that’s what financial literacy does to you.
I remember mentioning that ‘financial literacy is the ability to measure the pros and cons of each financial decision and be able to decide soundly.’ So, it’s not about taking risks without weighing them first.
3. Handicap’s one’s financial security
Financial literacy teaches you how to protect your investment and wealth. You learn how to insure your wealth, diversify your investment, and invest for your future generation.
So, you become financially secure when a disaster like a job loss or a business collapse strikes. Unlike a financially illiterate person, you don’t handicap your financial security.
4. It gets one into debt and debt slavery
The Bible in Proverbs 22:7 confirms that ‘the borrower is slave to the lender.’ People borrow because they lack financial literacy, and what does that do to them? They become enslaved to the lender as the Holy Scriptures outline.
Since you have to pay the loan, it may mean sacrificing a mega part of your earnings and going without some luxuries or needs to do it. That’s slavery!
Do We Really Need Financial Literacy in Kenya?
Financial literacy presents an array of benefits we need as a country. Notable ones include:
1. Understand money, its value, and how it works
Financial literacy enables you to learn about money. You learn its value so that you can appreciate and protect it.
You learn about the time value of money, where a dollar today is more valuable than a dollar tomorrow, and get to invest soonest.
Also, you learn about the compounding effect of money, where money needs to be invested and grow, and opportunity cost, where you find better alternative uses of money.
2. Protect oneself from getting into debt
Financial literacy educates you on personal finance management and budgeting. That allows you to plan for your money, and when you do, you can avoid unnecessary borrowing.
No longer will you be an enslaved and distressed borrower. Who knows, you could be the one lending to others once you organize your financial house and become more ethical with your money-making decisions.
3. Prepare better for financial emergencies
You don’t have to borrow to pay for emergencies. That’s what an emergency fund is there for. Setting one up prepares you for unforeseen events like a job loss, medical bill, or business collapse.
Typically, an emergency fund should equal at least six months of your household expenses. With it, you’ll be able to get by for at least six months as you find your feet.
4. It enables one to invest, diversify investments, and create multiple income streams
According to finance expert Robert Kiyosaki, “Money without financial intelligence is money soon gone.” Financial literacy enables us to keep our money by empowering us to invest it and diversify our investment. And in the process, we can create multiple income sources.
5. Live a less stressful life
Financial literacy keeps you from life’s financial stress. You’ve heard of people committing suicide, selling off their possessions, and succumbing to depression due to loans.
Well, that’s avoidable with sound financial education. Financial literacy equips you with the skills to plan for your finances, however small, and have peace of mind. It takes financial literacy to avoid money stress.
6. Avoid bad money habits
Bad money habits like not saving up, not investing, gambling, not setting up an emergency fund, and borrowing are all products of financial illiteracy.
The result of such a habit is a financial struggle. You get into debt and become unproductive.
Financial literacy, however, changes the whole dynamic. It enables you to learn healthy money habits like planning for purchases, budgeting, investing, spending on health, and setting financial goals.
7. Make ethical money decision
Financial literacy enables you to make better financial decisions. For example, instead of buying a luxury when you have money, financial literacy enables you to save up the money or invest it and grow it so that you can afford the luxuries later in life more comfortably.
Also, financial literacy enables you to invest in your health earlier before a disaster strikes. Most people borrow for medical issues because they lack health insurance. With a medical insurance, you save the money and put it in other uses.
8. Attain financial goals
Financial literacy enables you to set realistic financial goals and follow them up. By budgeting, for example, you get to set aside some money for investments, enabling you to put your money into work.
You also save up and set up an emergency fund, and that helps in the future when there’s an emergency. You cannot expect to achieve anything involving money without planning for it, and that’s where financial literacy comes in.
9. Boost the country’s economy
We all have the responsibility of protecting and building our nation’s economy. The more we become financially conscious of our decisions, the more we boost the country’s economy, and financial literacy is the key to unlocking that.
10. Help the less privileged
Lastly, financial literacy enables you to become a seed in someone else’s life, particularly the less privileged. You can help them make better financial decisions and even chip in whenever you can to help them financially.
After all, what’s the essence of having so much when you cannot help your fellow man?
The Loan Menace in Kenya
Today, many online money apps and platforms promise ‘easy loans’ even for those with poor credit scores. Notable loan apps and lending platforms include Fuliza by Safaricom, Mshwari, Tala, Eassy Loan by Equity Bank, KCB MPESA, Branch, MCOOP-Cash, Timiza by Absa Bank, and Okash, among others.
But you’ve to ask yourself, are these loans ‘easy’ as the lender claims? The answer is NO.
While the loans are ‘instant’ as the lenders claim and even have an almost seamless application process, there is always a catch.
For one, there is the aspect of paying high interest, some as high as 348-876% annually, as reported by Tech Crunch. That’s outrageously steep, given that local banks rarely ask for more than 20% annually.
What if you don’t pay?
Well, these digital lenders are always in a hurry to report you to the credit Sherriff, the CRB. But before they do, they’ll bombard you with countless annoying reminders and call everyone on your phonebook to shame you.
Just imagine your revered pastor, pestering mother-in-law, or the mama mboga next door getting a call claiming that you listed them as guarantors for a loan!
It has to be embarrassing, right? Well, that’s what some Kenyan borrowers had to deal with after delaying paying back their loans.
In fact, statistics show that 1/10 of digital borrowers default on paying back their loans. So, the risk of default is always there.
Digital borrowers also don’t stick with one lender. According to a report by Standard Media, 14% of digital borrowers balance loans from multiple lenders. They borrow one to settle the other, and the more they do, the more loans they accumulate and the higher the interest they subject them to.
We also cannot forget the social menace that these digital lenders create, especially when one defaults. According to Yahoo News, digital borrowing has become a social menace, initiating suicides, family separations, and divorces.
By borrowing and failing to pay, families find themselves in disputes threatening their ties and happiness.
But Why Do Kenyans Borrow from These Digital Lenders?
Kenyans have different reasons for borrowing from these digital lenders, some reasonable and others not. An FSD Report re-counted by Standard Media shows that only 37% of digital borrowers borrow to finance their businesses, 35% borrow to meet their day-to-day needs, and only 20% do it for education.
Even more interesting is that 15% borrow to buy airtime, and 3% do it for betting and lending to others.
Seriously, why would one borrow to lend to others, bet for a game your chances of losing are higher or buy airtime? That’s a debt trap right there!
You also don’t need to borrow for emergencies, as you need an emergency fund, and we at Cent Warrior can help you set one up. And with good budgeting and planning, you wouldn’t need to borrow for day-to-day needs, education, or any other need.
What’s the Financial Literacy Gap in Kenya?
According to Kenyan Wall Street, the financial literacy numbers in Kenya and Africa are worrying. The report shows that only 38% of Kenyans are financially literate, while Tanzania and South Africa enjoy 40% and 42% respectively while Nigeria has a low of 26%.
Let’s go back to Kenya. 38% is perturbing, that’s for sure, and it’s not the only concerning statistic. A study by KNBS shows that only 49% of borrowers in 2021 had accurate borrowing knowledge, while 32% didn’t.
And as you dig into the report, the regions with the highest financial illiteracy numbers include North Eastern, Kwale, Migori, and Narok. The report shows that most borrowers in these regions cannot correctly calculate a 10% interest charge on a Ksh 10K loan.
That resonates with the fact that very few people from these regions get the opportunity to go to school, impacting their financial decisions. It, however, doesn’t mean that graduates don’t make poor financial decisions. They do, and that’s more concerning than those who have never stepped into school.
Plus, there is the aspect of the gender financial literacy gap. A report by Women Connect shows that women are less likely to own a bank account, while 17% are less likely to follow the formal route when borrowing money.
These women borrow money through community chamas and put up their houses, businesses, and even belongings as securities for the loans. That again boils down to a lack of financial literacy.
How Can We Bridge the Financial Literacy Gap?
Yes, the financial literacy gap is wide in Kenya, and we need financial education. So, how do we narrow the gap?
First – Learn about Money
According to finance expert David Bach, “Financial education needs to become part of our national curriculum and scoring system so that it’s not just the rich kids that learn about money but all of us.”
Indeed, we don’t learn about money in school in Kenya, and even if we do, it’s not much. That’s part of the reason kids grow up not knowing the value of money. They cannot save up the little they get, and their parents don’t help either.
To bridge the financial literacy gap, we must learn about money, even if it means doing it after school. You can read a financial book or blog post, listen to podcasts, or sign up for a financial course.
Just do what it takes to learn about money. If you and other concerned Kenyans take this step, we’ll continue narrowing the financial literacy gap.
Second – Talk about Money
After learning about money, you’ve to talk about it. We have to talk about money, especially with our spouses and family. They should understand our financial plans so that they can help attain them.
By talking to them, you also impart financial knowledge to them, which aids in bridging the financial literacy gap.
Third – Seek Help from People Who Understand Money
This is where we come in as Cent Warrior. Our goal is to help people struggling with debt to pay off debt and those in dire financial distress to attain financial fitness and freedom. We don’t promise instant reason, but we walk you through every step you need to become financially free.
Our 9-Factor Plan for Financial Freedom takes you through critical financial skills such as budgeting, investing, saving, debt repayment, and investment diversification. At the same time, our 3MP Formula shows you how to make, manage, multiply, and protect your money.
Conclusion on Financial Literacy in Kenya
Statistics show that the financial literacy gap continues to widen in Kenya, which should be concerning. There is hope, nonetheless, for narrowing the gap, starting with financial education.
We’ve to learn about money to talk about it and impart the knowledge to others. However, don’t forget to approach experts in the field who can help you escape financial distress and attain financial freedom.
That’s where the Cent Warrior family comes in. We are a team in the finance sector, and our mission is to help you become debt-free and financially free.
Also Read:
