Will higher interest rates encourage Nigerians to save more?
The influence of savings in Nigeria.

I once read a quote that said, "Savings is the gap between your ego and your income”, from a book by Morgan Housel—The Psychology of Money.

In his book, Housel argues that wealth is created by suppressing what you could buy today to have more stuff or more options in the future.

And while this is true, does it mean that if I simply had the humility of a lamb, I would save more or be wealthy? Of course not. 

 

Key takeaways:

  1. On the 19th of July 2022, the Monetary Policy Committee (MPC) raised the Monetary Policy Rate (MPR) to 14% from 13% in May and 11.5% in April 2022. One of the reasons given for this decision was to tame rising inflation. 

  2. The committee aims to incentivise savers/investors to hold on to the naira by increasing interest rates to make savings more attractive, as opposed to spending excess income. 

  3. However, data shows that interest rate is only one factor influencing how much people are willing to save. Other factors include investor confidence, saving alternatives, the overall economy's health and inflation.

 

At this point, we can turn to standard economic theory, which states that interest rates influence the direction the broader economy will go when making decisions concerning savings.

Essentially, two classes of people make up the economy. The first group are those with more money or income than they need to spend on goods and

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Yomi Ajayi

Yomi Ajayi

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