Blowing money fast: Why we go broke despite the big cash payouts

By D. Gumisiriza Mwesigye

National Social Security Fund (NSSF)—partnered with Housing Finance Bank, Stanbic Bank, Xeno Investments, and ICEA—to organise a Money Talk Symposium in response to what their research had revealed about many of their beneficiaries.

It was found that about 60% (or more than half) had spent their savings within a year! And others, who probably “survived” the spending spree of YEAR 1, did not make it through the second year. To borrow from rapper Rick Ross mega-hit, they blow money fast… though this applies in another context.

Without jobs and in retirement, many of these beneficiaries live broke and on the margin till the inevitable end—death—surviving on whatever little they get through generosity and good will of their children, relatives , friends.

Nearly 60% of the beneficiaries/savers acquired a house (bought or built) with their savings. Though viewed as an asset, a house that does not bring in income is a liability. In other words, you are under your own roof but running broke.

Grim stats

However, also note that this statistic quoted by the keynote speaker—Pius Muchiri, CEO, Nabo Capital—a good number of employees do not make it to retirement! About 56% are retrenched or laid off before attaining retirement. This trend can be attributed to the different disruptions, reforms and changes, which companies, organisations and institutions are going through in the current political as well as economic environment.

Why is it that we do not make sound financial decisions even when we have the money in our hands?

There are so many stories of people getting payouts from provident funds such as NSSF or work-related schemes, compensations from infrastructure projects or windfalls from land purchases, or inheritances. For most, though the huge amounts of cash vary, the end is the same—back to broke after a few short years.

School of Hard Knocks

I will use observations from my experiences. I have been in and out of employment for the past 20 years since I left university. I have earned lots of money from good jobs, land sales and terminal benefits, and also lost it all. I have started a business, made losses and abandoned the entrepreneur route [which I regret, I should have stuck in there]. I have worked at a job where the employer has spent months without paying salaries.

From all my “battle scars”, I came to a cul de sac where I took lessons from the School of Hard Knocks—rewinding back to where all went awry.

Oh, for the record, I am a saver with the social security fund—who will have to wait 10 more years to get the pay out, or in five years if I am unable to work, or could even get it now if the proposed amendment to the laws are passed.

Here is what I see based on the lessons learned in especially in the last two years, and further back over my four decades on earth.

FEAR

There is no other aspect of life that shows or rather brings out this than money.

Most of us are brought up in fear; we are threatened with the cane if we get out of line, told there is ogre out there if we move around at night, that we will earn a curse or some kind of supernatural sanction if we question some things! We live with this fear and it keeps manifesting in several ways… even in management of money. We are always pushed to play it safe and we become risk averse. But fortune favours the bold.

NSSF reported that it paid out Shs400 billion to 24,000 beneficiaries in 2018. [It is worth noting that figures indicate that, on average, NSSF pays out Shs44 billion monthly].

For purpose of argument [though I am aware of variance between the individual amounts], from the 2018 figures, it is Shs16.6m for each beneficiary.

Let us take this example, faced with a choice between these two—a low-risk but (s)low-return land purchase or investment in a higher-risk but lucrative dairy business. Every other beneficiary may opt for safer bet on land. Yet even just production of raw milk would bring in daily income [hence, a steady cash flow] compared to land that would bring in money from rent or eventual sale or lay idle for years.

MINDSET Scarcity versus Abundance)

Ever since I came to know about scarcity as opposed to abundance frames of mind, I came to know what afflicts many of us. We tend to limit ourselves because we think and feel there is never enough of anything. If you doubt, tell me how many times you hear the refrain “there is no money” in homes, on streets, at offices, with government?

Scarcity mentality is just that, when you believe there is never enough, there never will be. But with an abundance mentality, there is optimism in the availability of the things we want in life; money, health, wealth, love… etc.

“WASTED” YEARS

Many of us tend to waste some of the most productive years of our lives. These are usually the 20s and 30s, part of which are spent in school or pursuing further studies, chasing paper qualifications that may not help us.

Most of us leave university without a plan for the life ahead yet we had a whole of three years (at least) in university or other tertiary institution to do that. Or if not in higher education, let us look at typical 18-year-old. Ask him or her what he or she wants to do, and you will most likely get a blank stare… or at best, a nonchalant answer like “Anything”.

The same would most likely happen towards retirement—after years of employment, ask if there is a plan and you will not get a clear answer.

So, how do you expect there to be proper use of the NSSF money when it is received?

BIG PAYOFF AS JACKPOT

After toiling for decades and you are in the mid-fifties, that big payout is like a big reward… a jackpot one has won.

Any surprise that one would get a new wife/bride, a new car, a house or all things that one has felt life denied him or her? If that was so, gamblers would make good with the jackpot they win.

LACK OF LONG-TERM PLANNING

Three years? Five years? Ten years? The way we live our lives, this period seems like a stretch.

We take each day as it comes… literally. It is hard to find an ordinary Ugandan setting out his or her plans in the medium or long terms rather than in the short term. Even if NSSF is more or less “forced saving” for the future, it is uncommon to find one planning for long term after he or she has got the money.

Hardly any of us plan for the next generation, as in involving the children in what we do or our future plans. This is a sure-fire sign that you are thinking of the future.

DISTRUST

There is a kind of general distrust for certain ways of investing money, which would keep our money safe and yet productive.

For instance, why is it that stocks, shares, Treasury Bills attract less investment compared to real estate that we tend to favour? Why don’t we look at insurance policies as an option to keep our money working for us and for our children with the advantage of being covered in life and in death? Why is it that unit trusts and collective investment schemes have less traction?

If five people got each of their Shs16.6m and pooled it together in a unit trust or bought Treasury Bills for just a year. Shs83m will make those five more than the Shs16.6m each received, and with the 60% probability of all being spent within two years.

This distrust extends to our inability to see the strengths and opportunities of working together. We tend to operate as lone wolves with our tunnel visions. We are reluctant, hesitant or afraid to venture out of the norm, think out of the box, and break out of our little silos. As the NSSF research shows, most beneficiaries take investment advice from their relatives and friends.

You could probably get good advice from a relative or friend but we also could be led down a wrong path by the same people we trust. They might not have ill will but just don’t have the expertise in financial advice and are limited in scope.

BLISSFUL IGNORANCE

The thinking among most of us is that reading or search for knowledge and skills ends with school. But there is so much knowledge written in books, stored in libraries, passed around online. The opportunities to get ideas and share them are vast.

But because while in school, we confined ourselves to textbooks and class notes, even in life after school, we restrict ourselves to the rivers and lakes we are used to than chase the waterfalls to be explored.

So, is it a surprise that we cannot even educate ourselves about financial management, or attend short courses or trainings or garner ideas to prepare for retirement? How then will we manage the big pay out when it comes?

Sum of Many Parts

However, all is not lost and I don’t mean to burst bubbles or break balls. Let us look at ourselves in the mirror, do self assessment to better ourselves for a retirement that is not only fulfilling materially but physically and spiritually. Remember that every human being is a sum of many parts that should work in tandem for wholesome growth.