The Benefits Of Group Savings Schemes
Group savings, or “Merry Go Round” as they are more commonly called in Kenya are as old as the country’s history. Our mothers and grandmothers used their Merry Go Rounds (MGRs) to furnish houses, buy crockery and visit each other during times of need. Their MGR buddies are their closes friends even today in their old age. The basic idea behind an MGR is that you each contribute a set amount of money, and each month, a member receives the total contribution which they can then either invest or spend as they wish. MGRs came into existence as a time when financial services had not been democratized, and women did not have access to mainstream financial tools such as bank savings accounts.
The other day, someone asked me if there is value in being in an MGR, considering that if you want to build savings you can just open a savings account, a money market account, or even an M-Shwari Lock Savings account and start saving.
Is there value in going through the tedious process of getting people together, then the taking the trouble, and bearing the extra cost of collecting and disbursing monies every month?
For the last three or so years, I have been in an MGR, and I would say yes, I have found immense benefit in being in an MGR. There are three key benefits that I would say are more or less universal and two you can build into an MGR.
Setting public goals
An MGR takes personal finance public. You agree to save a certain amount and make that commitment publicly. This is important because as human beings, we naturally care about what our neighbours are doing. In the past, it was easy to influence each other to build wealth because wealth was visible. Wealth was expressed in the number of cows or goats our neighbours had, the size of their land, and maybe even how many children they had. Today, our spending is visible, but our wealth building is not. It is therefore not surprising that many of us pursue consumption because we have come to associate big houses/cars etc as a sign of wealth. They are not, and in social settings, we rarely talk about our money habits – talking about investments you have made could be considered bragging. An MGR forces this to happen. We are able to set goals together and it shifts the discussion away from how we are spending to how we are saving. Most of the members of my MGR are ladies in the beauty business. I am challenged at how disciplined they are with their finances, despite the fact that their cash flows are not as predictable as mine, a salaried employee.
Financial accountability
Have you ever resolved to save an amount of money every month, only for you to stop doing it a couple of months down the line, because something came up and disrupted your new habit? This happens to all of us. The advantage of being in an MGR is that you have to make your contribution no matter what. If you are late by even a day, the penalty can be as high as 10% of the contribution. This sort of accountability is precious and is worth the administrative costs of running the MGR. If like me you struggle to watch a sum of money build-up without spending, investing or giving it to someone in need, a MGR works because you do not have access to it until it is your turn. You cannot withdraw halfway.
Visible savings milestones
As I keep saying on this blog, the journey to financial freedom is long and arduous. It is easy to give up and just YOLO your money away. The MGR payout gives you visible milestones that you can use as markers of your progress. My MGR’s monthly contribution is significant enough for me to make an investment off my payout every year. This means that when I look back the last three years, I can see each of the milestones I have hit because of this commitment.
Social goals
This is not a benefit I enjoy because my MGR does not meet, but most MGRs also meet and spend time together. In our increasingly isolated world, this is precious as you get to form friendships and have people on your side should a need arise. An MGR also gives you an opportunity to convert your social groups into savings groups, by starting to save together with friends.
If you have a group of five or more friends you regularly meet with consider starting an MGR or even a table bank. People like to say that money and friendship do not mix, but a good friendship includes spurring each other towards better money habits.
It is a launchpad to forming an investment club
Once you have saved together for a couple of years and built that trust and relationship, the next sensible step is to start building wealth together. You may decide to apportion part of your savings towards a common investment. I am greatly encouraged by stories such as this one, where an investment club that holds millions of shillings worth of real estate was started off a KES 5,000 a month contribution by its members.
