THE 100 MILLION SHILLINGS CURSE

It is a simple question, on the surface of it.

If I gave you sh100m right now and here, what would you do with it?

The answers to the question would fall in two categories – consumption or investment.

Consumption would be cloths, food, travel, cars -- things or experiences with no financial return while investments would include saving, buying, government paper, shares, land or real estate.

"Given the distribution of wealth in the world we can expect that 10 percent, or less, of responders will choose the investment route while the remaining 90 percent will choose the consumption route....

According to the World Economic Forum (WEF) 10 percent of the global population own 76 percent of the world’s wealth while the bottom 50 percent of the population only own two percent.

There are obviously many reasons why this is so, not least of all because poverty can be passed down generations, but when you strip away all the excuses, whether we become wealthy or not is down to our spending decisions. More precisely the balance between consumption to investment in our decisions over time.

It really is as simple as that.

When I get onto the financial literacy circuit my talks will begin with that reality, that there are only two ways to spend your money –- consumption or investment.

The trick is to reorient your thinking. Easier said than done. I used sh100m in the question above but what about if it was sh100,000 or sh10,000 or sh1,000?

In school there was always this one kid who was a trader. They often took all their pocket money at the beginning of the term, which in those days may not have amounted to much, bought sweets or cigarettes or whatever other small knick knacks to trade with other kids. I don’t remember them being spectacularly rich, though maybe this was a defence mechanism to guard against those who tended to reap where they did not sow, but also they were never broke – especially if there was a good deal to be had.

I imagine as they grew and dealt with larger sums, they are much richer today. But first they had to learn the discipline with small sums.

"Many of us think that we will really begin to make money when we have big monies. The truth is if you had bad financial habits – consuming rather than investing your small monies, you will carry this indiscipline when you have bigger sums....

If we operated in a vacuum it would be much easier to acquire this discipline, but since the majority of us do not think like this –see the WEF statistic above, most of us are doomed to a life of poverty or at least living way below our financial potential.

The societal inertia, which urges us to consume rather than invest is not easy to beat back. Because, think about it, what in practical terms would this mean, investing instead of consuming.

You would have to forgo, for a while, new clothes and shoes, eating out as often as you want (or eating altogether), riding in taxis to work instead of buying a car or renting in a high maintenance area than staying in your mzigo, which is adequate for your needs and only costs sh100,000 a month. Sacrifice.

Not easy when everyone or at least nine in ten people around you is consuming not investing.

The interesting thing is done of a long enough this accumulation takes on a life of its on and begins to seem like magic. The magic is called compounding, unfortunately few of us  are in it long enough for compound interest to take hold.

My favourite American Warren Buffet turns 92 this year. He started investing at 11 but most of his wealth has been made after he was 50. And its not just because he was investing larger sums, but more because the compounding curve of his experience and knowledge went exponential after 50.

This is enough to discourage most. Who wants to wait so long to become rich? What is the point of accumulation if you are not going to eat your money (Buffett is notoriously frugal despite being worth more than $100b)?

"Whether you shift your spending habits or not, the time will still pass by, so why not use the time effectively?...

But Buffett is oceans too far.  In the late 1990 The Financial Times interviewed local businessman Sudhir Ruparelia at the end of the interview they asked him how he had accumulated so much wealth – I imagine they were wondering how he did it in such a poverty-stricken country. Sudhir responded something to the effect t, “It is an old Indian trick. Make ten shillings, eat one and reinvest the remaining nine shillings in the business. Repeat until rich.”.