Why are the youth debt ridden?

Once in a while, you will find yourself in a financial bind and request a friend or family to tide you over. Asking for a soft loan is quite normal.

Mobile loan apps make it even easier to borrow money when broke raids. Chances are you have interacted with such platforms, and even borrowed money from them.

Mobile loan apps are popular among the youth, and are making a killing. Unlike traditional lenders, these do not have tedious application processes. No paperwork is required. Besides, you need no guarantors or collateral. And the loan is instant. What could be more convenient and enticing!

Yet this is where the trap is. The loans are addictive, and can be a bondage. Today, millennials are debt-ridden, with some unable to service these loans.

Young people who shared their experiences with myNetwork tell us why they borrow money, their expenditure and the perils of such loans.

They all agree that the impressionable nature of millennials push them to borrow money that they do not need, and spend it on mostly liabilities in their quest for ‘acceptance’ in the society.

TRUSILLA MATUNDA, 23

Model

Matunda is a communication and media studies graduate from Zetech University. She practised journalism for a year before trying her hand at modelling. She makes jewellery, gift cards and handmade décor items on the side.

Have you ever borrowed money from such platforms?

I dread being in debt but I just cannot avoid loan apps. Branch, Tala and Utunzi are the most popular apps in my circle of friends.

Are your reasons for borrowing money always compelling?

The need to borrow money for me is mostly influenced by wants rather than needs. I have occasionally had to borrow from friends and family to buy a dress, a pretty bag or a pair of shoes I had run into during my strolls in town.

There are even times when I would call someone to send me some money so that I can take a cab instead of matatu. These are things that I could forego, but I still convince myself that I must have them.

Have your friends ever influenced your financial decisions?

On numerous occasions I have bought an item or invested in a cause on grounds that my friends thought it was a great idea.

This always ended in disappointment after my financial status was thrown into disarray. As such, I have learnt to not involve them in planning for, and spending my money because this usually leads to misuse and regrets later.

How do you service your debt?

I mostly pay back from my income from different modelling gigs that I participate in. Proceeds from sale of my crafts also help me to put off any debts that I might have.

For fairly large amounts of money, I come up with a payment plan that works for both the lender and myself. We agree on the repayment period which reduces the pressure to pay back. Instalment plans are also easier to work with; than bulk repayment.

Have you ever defaulted in your loan repayment? What were the consequences?

I once did. I had borrowed money from a close friend to take care of a small personal matter. I thought I would be able to refund in two weeks, but this was never to be. It was embarrassing to ask my loaner for more time and had hoped that before he could ask for it, I would have offset the debt.

Unfortunately, he asked for it before I could get it. It is then that I explained my circumstances. He was so furious and even after clearing the debt, our friendship was thrust into the rocks and later ended, which I regret to date.

Have loans/debt affected your savings in any way?

Nothing is as frustrating as having to slice a large proportion of the income you have worked so hard for to settle a debt. This makes saving a nightmare because the little money that remains is for getting by.

I have had instances when I had to pay loans with almost all the money I had made from the sale of my crafts at the expense of buying materials to expand my small business.

To save my business from collapse, I had to withdraw my savings to restock. Unless you are borrowing to invest in a business, borrowing money is ill-advised.

Would you rather struggle to service a loan or fall short of keeping up with your friends’ standards?

As a model and someone who is in the limelight, the society’s expectations of me are simply dizzying. My peers have lifestyles that I may not always afford.

As someone without a regular salary, I would rather not put myself in a jeopardising position in the name of fun, and instead save up for a rainy day.

NYAMBURA WAKANYUA, 26

Content creator, ATLAS International

Do you agree that loan money is easier to spend than earned money?

I could not agree more. You hardly think twice before spending it. After all, you did not cut sweat to earn it.

I once borrowed money for my apparel and footwear business. Half the stock ended up in my own wardrobe because it was effortless to convert the stock to personal use.

Are you entirely opposed to loans?

I was able to start my business courtesy of a soft loan, so no. Borrowing, however, requires discipline to avoid making undesirable financial choices.

Besides, money is more accessible these days than ever before, tempting young people to acquire loans for the wrong reasons, mostly expenditure on liabilities.

Growing up, we had minimal access to important life skills such as saving. First came financial blunders and tough lessons, then prudence followed. I would say I have now completely drifted away from bad spending habits.

From your bad decisions, what lessons did you take home?

As a young and independent woman, the choices I make now bear heavily on my financial stability in future. My boyfriend and I decided to cut out people who only encourage expenditure that generates nothing in return.

Instead of using money borrowing apps, we now use apps for managing funds. For months now, we are able to keep track of our expenses, which helps to seal loopholes in our finances. I am not a miser, but I would rather save and spend my money only on ventures that will grow it.

I have also started a venture where I lend money to friends and family, and charge an interest for it. People will always borrow money, which makes the business self-sustainable.

Is there something you would not mind entering into debt to acquire?

Not after my experience with debts. The illusory satisfaction of borrowing vanishes as soon as it is time to pay back.

I now realise that the money I borrowed to start my business would have been easily been raised through a good saving plan. This seemed impossible at the time, but we all grow wiser with personal experiences.

STEVE BIKO, 21

Student

Biko is a final year student taking hospitality and tourism at Machakos University.

Have you ever borrowed money from mobile loan apps?

Yes, I have on several occasions. I have used Branch and Tala. Having these apps on your phone encourages borrowing even when you do not actually need loans.

I, therefore, had to uninstall them from my phone. The majority of my friends still have them though, and are always on a borrowing spree.

How do you spend loan money and do you have any about regrets it?

My regret is not about how I would spend the loan, rather, having resorted to mobile-based loans in the first place. I have borrowed money for personal utilities, but I have also borrowed for entertainment on few occasions. This practice can be quite addictive. But this was part of the learning curve.

Would you say that mobile loans have improved your financial standing?

I think I am worse off financially than I was before. This is after accumulating interests over a long period of usage. By the time I decided to abandon borrowing, I was teetering on the verge of being listed by the Credit Reference Bureau (CRB). I am still not sure if my name was ever cleared. The interest rate is extremely high as lenders seek to recover money lost to defaulters.

How differently would you fare without mobile loans?

Loan repayment is a frightening space to be, especially for a student without an income. Collectors are always on your neck, calling and texting incessantly and harassing you even before the due date.

Even more frightful, some lenders collect data including your call and text records which is an invasion to privacy. Having no loans allows me to focus on my studies, which matter most. What is the use of such loans when the temptation to spend money recklessly is so high?

Is it all gloom about mobile loans apps?

These platforms have their advantages too. They offer instant cash, especially during emergencies and unending spells of broke. The loans take less time to process while your loan limit increases depending with your creditworthiness. Some lenders also have flexible repayment plans.

GRACE MUMO, 20

Student

Mumo is a Third Year student of actuarial science at Kenyatta University.

Have you ever borrowed money through a mobile loan app? What was the money for?

I seldom borrow money from loan apps. To me, taking a loan only makes sense when doing so is the last resort. My friends though, borrow money to fund their drinking and partying during weekends. There are those who borrow to invest, but these are few.

What is your view on the exorbitant interest rates charged by loan companies?

Loan companies make a killing from their interest income. The 20 to 40 per cent per month rate is extremely high, higher than even the 14 per cent (per annum) charged by commercial banks.
Yet young people do not seem to realise this.

Or it could be that they simply overlook this fact owing to financial illiteracy. An interest of Sh40 on a Sh100 loan may not sound like a lot of money, but financially speaking, it is not sensible.

Why specifically do you think mobile loan apps target the youth demographic with their products?

Most young people are vulnerable and are excited by how easy it is to get loans from these platforms. Ordinarily, a loan requires tedious paperwork and long waiting periods before the cash is ready.

But such loaners require none of these. They offer loans instantly, with neither guarantors nor collateral. This is the selling point for such loans among the youth who are impatient.

Besides loans, how else would improve your financial status as a young person?

Embracing the culture of saving as early as now and being patient. The haste to have everything all at once pushes us to make poor financial decisions while disregarding their implications.

For the last seven months, I have been saving a little money for my personal use. I may not be consistent in this endeavour, but I am pleased with the progress I have made so far. Instead of borrow money when a need arises, I simply withdraw some from my savings.

Any nasty experience with debt?

Personally I have none. But one of my friends once borrowed money from another friend to start a mitumba business. He hoped to pay back in a few months, but things never worked out as he had envisioned.

At the end of the semester, he had not recovered the money yet the lender needed it to pay her school fees. The friend was forced to sell his laptop at a throwaway price to clear the debt.

JARED OUNDO, 26

Communication consultant and author

Tell us your experience with mobile-based loans.

I was fairly stable as a university student such that I did not have to borrow money for upkeep.

I got a job soon after leaving school, but this also anchored me on a financial precipice. I barely planned my expenditure nor saved money. Instead, I bought things on impulse, leaving me with little money to see me through the month.

Why did you have to borrow money while you were working?

After my first job, I was unemployed for a number of months. I started borrowing from Mshwari and repaying in time as my loan limit grew. My encounter with Tala and Branch happened early this year when business was slow at the company I work for as a result of the political turbulence in 2017. I could not resist the temptation to borrow after going without pay for three months.

Did this sort out your financial problems?

The two platforms gave me loans without much of a hustle. From the moment I got my first loan, I was hooked and soon I was on a spiral of borrowing and repaying. Cater for my immediate needs I did with ease, but my mentor advised me against this habit, arguing that it could land me in serious financial problems. I am now more discreet with my money.

What is the most memorable way you have ever spent loan money on?

I once borrowed money to help someone clear his school fees balance so that he could sit his exams. The person never paid the money back even after graduating. I had to repay it myself.

Do you think you have always been prudent with your money?

Not at all. I am too sympathetic towards people in difficult situations. A significant portion of my money goes to causes that I had not planned for, such as random people who ask for financial aid from me. Nonetheless, I do not regret helping out whenever I have the means to do so.

Do you think Kenyan millennials have the required levels of financial literacy?

There are millennials who earn enough money to sustain them. But their inability to utilise this income properly has confined them to the yoke of financial uncertainty.

Others are deceived by the ‘get rich quickly’ stories from celebrities and overnight fortune makers, by failing to embrace the reality that it takes time to generate wealth. Incorporating financial literacy in the school curriculum would help to plug this deficit. Life without a solid financial plan is treacherous.

Is financial planning as difficult as most young people imagine?

I do not think so. Most of us started planning our finances as children from the pocket money we got from our parents. We managed the money so well and even bought a few personal items for ourselves.

How come this has become harder instead of easier in our adulthood? Have you ever consulted a financial expert?

No. I have never. Most of those who have approached me came to me in the guise of financial advisors when in actual sense they were insurance sales people.

This lack of professional honesty scares me. Some are also not clear in the area of business they want to pursue with me.