Traditional savings systems may not fully protect your wealth in today’s economy.
Inflation and currency devaluation can significantly reduce your savings’ value.
Modern saving and investment strategies can offer growth and resilience.
Diversification and financial education are essential for long-term financial security.
Understanding risks and rewards is critical when exploring new financial tools.
Your grandparents trusted traditional savings systems like ajo, esusu, thrift contributions, and basic bank accounts, believing their money was secure. But with inflation and currency devaluation shrinking your savings faster than you might earn, are these time-honored methods still serving you—or quietly limiting your wealth?
Table Of Contents
What Are Traditional Savings Systems?
Why It Matters: Real-World Stakes
Psychology Behind Sticking to Old Systems
The Akawo System In Nigeria
Personal Assessment
Practical Steps for Modern Saving
Dos & Don’ts
Common Misconceptions
Tradition Didn’t Fail You
WHAT ARE TRADITIONAL SAVINGS SYSTEMS? Traditional savings systems include community-based methods like ajo (rotational savings), esusu, adashe, and basic bank savings accounts. These systems prioritize and promote accumulation of money but often overlook the impacts of inflation or currency fluctuations, which can reduce your purchasing power over time.
WHY IT MATTERS: REAL-WORLD STAKES
Relying only on traditional savings can:
Significantly reduce your purchasing power as inflation outpaces low-interest returns. For example, Nigeria’s inflation rate reached 33.4% in July 2024, while most savings accounts offered interest rates below 5%.
Limit opportunities to build wealth through higher-yield investments.
Leave you vulnerable to currency devaluation, especially in economies with volatile local currencies.
Globally, inflation often exceeds the interest earned from traditional savings, leaving savers poorer over time. For instance, in 2023, global inflation averaged 6.8%, while savings account interest rates in many countries remained below 2%.
PSYCHOLOGY BEHIND STICKING TO OLD SYSTEMS Shifting from traditional savings to modern methods can feel daunting, but psychological barriers often play a bigger role than practical concerns.
Understanding these mental triggers can help you recognize why you might resist change and how to overcome it:
1. Loss Aversion
People fear losses more than they value the same size of gains or wins. The idea of losing money in unfamiliar investments like cryptocurrencies or stocks feels riskier than the “safe” erosion of savings through inflation.
Trigger: Hearing stories of investment failures (e.g., a friend losing money in a crypto scam) amplifies this fear, making traditional savings seem like the safer bet.
2. Status Quo Bias
Familiarity breeds comfort. Traditional systems like ajo or bank savings are deeply ingrained, often passed down through family or community practices.
Trigger: Cultural reinforcement, such as seeing elders rely on esusu or thrift contributions, creates a sense that “this is how it’s always been done,” discouraging exploration of new options.
3. Overconfidence in Familiar Systems
Many believe they fully understand traditional savings, overestimating their effectiveness. This overconfidence blinds savers to the slow erosion caused by inflation.
Trigger: Receiving regular interest payments from a savings account, however small, reinforces the illusion of growth, even when real value declines.
4. Information Overload Paralysis
The complexity of modern financial tools (e.g., cryptocurrencies, REITs) can overwhelm a lot of people, leading to inaction.
Trigger: Encountering conflicting advice online or on platforms like X about investments can make sticking to simple, familiar savings feel less stressful.
5. Social Proof And Herd Mentality
People often follow the financial habits of their peers or community. If everyone around you uses traditional savings, adopting modern methods feels like going against the grain.
Trigger: Community events like ajo payouts or local savings group meetings reinforce trust in traditional systems, making alternatives seem risky or unconventional.
THE AKAWO SYSTEM IN NIGERIA
The akawo system, also known as ajo, esusu, or adashe in various Nigerian cultures, is a traditional thrift savings practice widely embraced in markets, workplaces, and communities, especially among Yoruba and Hausa populations.
It’s often hailed as a versatile financial tool that combines savings, borrowing, and money-making opportunities.
However, a closer look reveals that the organizer (the “alajo” or “akawo collector”) reaps the most financial benefits, while participants face significant risks, making akawo a poor choice for effective saving or borrowing in today’s economy.
The alajo holds significant power as the fund custodian, collecting commissions (e.g., ₦1,000 per participant per cycle) and often accessing the entire pool early for personal investments or lending.
For example, an organizer with 20 participants contributing ₦5,000 weekly could earn ₦100,000 in commissions monthly while investing the pool in short-term ventures, like lending at 20% interest, before disbursing to participants.
This gives the organizer a clear financial edge, while participants receive only their contributions without growth.
Nigeria’s 33.4% inflation rate in July 2024 far outpaced the zero returns of akawo, meaning a participant’s ₦100,000 saved over a year could lose nearly a third of its purchasing power.
Additionally, the lack of regulation increases risks of fraud or mismanagement. In December 2024, trader Rose Ojoma lost her ₦50,000 akawo savings when a collector absconded during the festive season, a recurring issue in unregulated systems.
Early payouts in akawo are not true loans but advances on participants’ own contributions plus others’ funds, repaid through continued payments. If a participant defaults after receiving their lump sum, the group faces losses.
While lump sums can fund business activities, the lack of interest or investment returns limits wealth creation for participants. The organizer, however, profits consistently through commissions and early fund access.
Akawo seems like a community lifeline, but it reduces the value of your money and delays real financial growth. Diversifying savings or using better saving systems gives you growth and peace of mind.
Evaluate your current savings strategy:
1. Are your savings growing faster than inflation?(Check local inflation rates vs. your savings interest.)
2. Do you diversify across multiple asset classes, like real estate or equities?
3. Are you comfortable exploring new financial tools, or do you stick to what’s familiar?
PRACTICAL STEPS FOR MODERN SAVING
Step-by-Step Guide
1. Save in Stable Currencies: Open a domiciliary account or use apps like Revolut or Wise to hold stable foreign currencies (e.g., USD, EUR) to hedge against local currency devaluation.
2. Explore Real Estate: Start with affordable options like land or REITs (Real Estate Investment Trusts) for potential appreciation. Be aware of market risks like liquidity or economic downturns.
3. Consider Cryptocurrencies: Stablecoins (e.g., USDT, USDC) can offer stability, while Bitcoin or Ethereum may provide long-term growth. Research volatility and security risks before investing.
4. Prioritize Investments: Allocate a portion of savings to assets like stocks or other assets with higher returns, balancing risk with your financial goals.
5. Review Regularly: Reassess your strategy annually to align with economic conditions and personal goals.
6. Start small by researching one new financial tool (e.g., a stablecoin or mutual fund) with credible resources.
7. Challenge assumptions by calculating your savings’ real growth after inflation.
8. Discuss modern strategies with trusted peers to build confidence and reduce the fear of the unknown.
DO:
Diversify across assets to spread risk.
Stay informed about economic trends and financial tools.
Consult a financial advisor for personalized guidance.
DON'T:
Depend entirely on traditional savings for long-term wealth.
Ignore inflation or economic changes in your planning.
Invest in unfamiliar assets without researching potential downsides.
Let your savings remain idle without purpose.
1. Traditional Savings Methods Always Protect Wealth: Inflation often erodes the value of these savings significantly, making diversification crucial.
2. Modern Investments Like Cryptocurrencies Are Too Risky For Most People: While volatile, strategic investments with proper research can reduce risk and enhance returns.
3. Saving In Local Currency Is Always Secure: Stable foreign currencies or diversified assets offer better protection from currency devaluation.
TRADITION DIDN'T FAIL YOU Traditional savings methods have their place, but they may not keep up with today’s economic realities.
Here’s a truth to ponder: Sticking to tradition might feel safe, but adapting to change builds wealth. What savings habit are you ready to rethink?
Next, we’ll explore if Money Really is the Root of All Evil — Debunking the Myth Keeping most people Broke(
Be the First To know!).
Take control. Save smarter. Let your money work for you.
Tools, Apps & Resources
FatCat Glossary
Comments
Post a Comment
🤝 Hey friend, your voice matters—say hi or share your story below.