5 Surprising Facts from the Kenya Financial Diaries Project
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What we can learn about money challenges from the diaries of low-income households.
A couple of us from Stellar recently attended a workshop at the Gates Foundation on the Kenya Financial Diaries. The KFD project followed 300 low-income households from June 2012 through October 2013.
95% of those households live on less than $5 a day, 72% on less than $2 a day.
Researchers worked with families to keep diaries of their financial transactions for over a year. Using a custom tablet app, they attempted to capture all income and spending for each household.
One of the major takeaways from the workshop was that we can’t make any assumptions about the financial inclusion tools needed by low-income communities. Here are some of the eye-opening things we learned.
1. 10 different sources of income
Families in the study piece together income from a variety of sources — agriculture, temporary work, a small business, resources received from family and friends. The median household in this study had 10 different sources of income, and those sources fluctuated.
This patchwork of income means that earning and spending are volatile, and financial strategies are constantly shifting. Necessities such as food eat up a huge share of budgets, and people spend a lot of time and energy making daily financial tradeoffs.
2. 14 different financial devices
Kenyans in this study are extremely active money managers. The median household used 14 different financial devices.
The large number of devices — from mobile money to credit at a local shop to informal rotating savings and credit associations (ROSCAs) — meet different liquidity needs. People need the flexibility offered by a large portfolio of devices in order to smooth the effects of income volatility.
3. Asset heavy, not debt heavy
Study participants are serious savers, but the high savings rate is often indicative of volatility rather than wealth accumulation. Most funds aren’t liquid.
Study participants want their money to be “working,” or out in the world doing something for someone. Many perceive mobile money and formal savings accounts as money that’s not working. Loans to family and friends, credit to customers, and informal accumulating savings and credit associations (ASCAs) might tie up your funds, but that money is working for you or your community.
4. 91% of savings in informal accounts
Social networks matter. Many low-income Kenyans indicate that they don’t trust banks or don’t believe they have enough money to save in a bank account.
Chamas — informal savings groups, including ASCAs and ROSCAs — connect you to people in your community and social network. Most saving, 91% in fact, happens through such informal channels, which are more compassionate in the face of volatility. While traditional financial institutions are unforgiving, if your neighbor misses a payment into a rotating savings account, you’re likely to tolerate it because you might need to miss one, too.
5. Even when people save, money might not be available when it’s needed
Kenyans in the study are serious savers, but cash still isn’t always available. Budgets require so much daily stretching and smoothing that participants often went without.
People forego health care, children are sent home from school, and families experience hunger when short-term liquidity — the ability to quickly turn an asset into cash — isn’t possible. And these amounts are frequently small. Cash shortfalls can mean not having access to $0.59 to pay partial school fees or $0.82 to buy medicine.
Intrigued? Read the full report from the Kenya Financial Diaries project.
Written by Jessica Collier, illustrations by Romina Kavcic. Editing help from Eva Gantz, Joyce Kim, and Winnie Lim. Thanks to everyone from the Financial Services for the Poor program at the Gates Foundation for having us!
