Why Are So Many Employees Upset on Payday?

 Why is it that payday often brings a wave of frustration for so many employees? If not frustration, it’s an anxious eagerness to use that income to tackle debts that feel overwhelming. The narrative often feels the same. My major question has always been: why? I’ll share what I’ve learned over my five-plus years in employment.

Many of us share a common mindset. By this, I mean we often get employed with the thought: "I want to earn a salary so I can buy a car, move to a better house, upgrade my phone, buy designer clothes, travel to new places, and so on." For others, the reasons for employment might seem more 'genuine'  things like: "I want to afford a better education for my children, get better life insurance for my loved ones, or be in a position to offer the best life to my family." While none of these aspirations are inherently bad, they all require structure, understanding, and financial literacy in how we approach our financial choices.

If your primary thought upon employment is immediately upgrading your lifestyle, you're likely to fall into debt. This is often because your initial income won't be sufficient for the lifestyle you desire. So, what happens? You might take up consumer loans to fund this lifestyle inflation. Often, people don't even realize they're taking on consumer loans specifically to upgrade their lifestyle; the purchases are frequently disguised as 'necessities'.

Here’s a good example: You've just received a promotion in the middle of the month. You're a lady, and while your hair is presentable, it's not freshly plaited. Overjoyed by your promotion, you go home that evening. Then, your mind starts: "You can’t go to work tomorrow with that hair! You just got promoted; you need to look sleek, like the boss you are." You agree, thinking, "You know what? That's true. I need to get this hair done." Adrenaline kicks in, and without a second thought, you apply for a mobile loan. It’s approved instantly, and the funds are sent straight to your phone.

Let's break down what just happened and how this seemingly small decision can lead to significant financial strain:

1. Growth Inability: Due to a lack of financial literacy, the moment your mind registered the salary raise, its first thought was, "How can we spend this extra money?" To some extent, this isn't entirely your fault; it's often based on your current understanding of money. This is precisely why financial literacy is crucial. With financial literacy, your mind would instead say, "Great, more money to invest and grow!" (We'll delve deeper into this shortly).

2. Consumer Debt / High-Interest Debt Trap: Secondly, you've stepped into the trap of high-interest consumer debt. The speed and efficiency with which the mobile loan app granted the loan can register in your mind as an easy way to get money whenever the perceived need arises, even if it’s not a genuine necessity. If you calculate it thoroughly, you’ll realize that loan likely cost you an extra 15-20 percent in interest. So, not only have you spent money on something of fleeting value, but you’ve also given more of your hard-earned cash to the lender. The salary raise you received is already diminishing before it even reaches your bank account.

3. Lifestyle Inflation: Before the raise, your lifestyle was manageable. You paid your bills on time, perhaps managed to give your tithe, and even tried to save a little at the end of the month. Now, despite the salary increase, you find yourself even more broke. Bills have become overwhelming, you're sinking in debt, and you might even feel like your employment is pointless. Lifestyle inflation is the tendency to increase your living standards every time you get a raise – and at some point, many of us have been victims of this, myself included!

These are just a few ways we allow extra income to drag us down, essentially using a promotion or salary raise against ourselves instead of for ourselves. In today’s blog, I’d like to explore how you can escape these common traps that often keep Kenyan employees feeling broke. To recap, these traps include:

a) Lifestyle inflation – you got a raise but somehow you’re still broke. 

b) Unplanned consumer loans – taking up mobile loans to upgrade your wardrobe or for other non-essentials. 

c) Impulse spending – especially through M-PESA or buy now, pay later apps. 

d) Ignoring budgeting – if you do not budget, you’re not planning your finances, and not planning is planning to fail. Remember, guesswork is expensive! 

e) Avoiding or ignoring SACCOs and affordable investment options – one of the best, quickest, and easiest ways to gather capital for an investment opportunity or to start a business is through SACCO loans, but you have to understand how SACCOs work and how you can leverage them.

Now that we’ve looked at why many Kenyan employees might remain broke even after a salary raise and what causes this inability to grow financially, let’s explore how you can escape these traps. 

My biggest proposed solution to this challenge is becoming financially literate. Honestly, I believe there’s no other fundamental way around it.

Through financial literacy, you learn that every raise isn't just for consumption but for growth. For instance, if your life was okay before the raise, what’s the real benefit of drastically increasing your living standards just because you got an extra 5,000 shillings? The more you increase your standards, the more your expenses rise. Instead, consider putting that extra income into an asset that can generate more money for you. I know the pressure to live a "good life" is immense, but a time will come when you will live well. However, that future is largely dependent on how well you prepare now.

The realization that many Kenyans might be financially illiterate, combined with my own experiences over the years, drove me to aspire to become a financial educator. My mission is to help youth and young adults learn how to handle their finances effectively from a young age. This drive and passion led me to start my YouTube channel, "Financially Fluent With Jacky," where I break down complex financial topics into simple, easy-to-grasp everyday solutions.

If this mission resonates with you, I invite you to visit the channel, subscribe, and let’s learn and grow together. While you're at it, be sure to subscribe to this blog too! Some topics are covered here that aren't on the channel, and for others, I break down the points more deeply and smoothly in writing right here.

As I wind up, remember this key takeaway: being broke is often not just about low income, but about poor financial strategy.

Until next time, have a financially fruitful and blessed time.

Jacqeline Mutuma.