Why building your savings in a Covid-19 Economy might be a bad idea

Why building your savings in a Covid-19 Economy might be a bad idea

By

Asubiaro Samuel Busayo
Head Consultant
Sprout Business Support.
Exchange rate forcast from wallatinvestor.com

Recently, I got a data analysis contract from an Australian client, I charged him 300 USD; I was ecstatic, why? Because the value of a dollar against the naira had suddenly increased due to the COVID 19 outbreak; there is an increase in the demand for dollars by the government to purchase medical supplies for treatments of patients. So, more international contracts, more income!!! But the other side of the coin is that the Nigerian economy is a reactive economy rather than a proactive economy, which suffers from international shocks because of our habitual importation.


Hence, a reduction in the value of a naira against the dollar translates to increase prices of almost all goods in the economy (because we will pay countries we import from in their local currency usually in USD). So, the value your savings will command in the market today is lower than what it will have commanded a month ago.


Read more below Holding a saving account is good, saving up for education, accommodation, possible health challenges, or some goals in the future, but having a goalless saving attitude is bad and will become worse for many economies during and after the pandemic. It is well established in business that money not generating returns is money losing value. Saving without an actual reason or goal may not be a struck of financial genius especially in an unstable situation that the COVID-19 outbreak has created.

A reduction in the value of the naira will naturally push up interest rate (since interest rate is simply the price of a loan) as well as market prices. This means,

  • Your bank will likely charge you more for saving your money with them.
  • You will buy less with more money (Mostly for imported goods and whatever is produced with imported goods).
  • Therefore from the bank charges and your reduction in the real value of your savings, your savings reduces both in real and absolute terms.

In these times, it is wiser to let your money work while you save your energy than for long for a time when you will work with your energy and save your money.

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