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Unravelling Uganda’s financial health
Financial health is not about how big your earnings are; rather, it is about how you handle the money you receive, and how today’s earnings can be used to create a buffer for the rainy day. Put differently, financial health is about how long one can maintain a financial lifestyle when there are major changes in circumstances, such as earnings.
Prof. Augustus Nuwagaba. (File)
By: Admin ., Journalist @New Vision
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OPINION
By Prof. Augustus Nuwagaba
Financial health or financial well-being, like an elephant, is more easily recognised than defined. It refers to the extent to which a person or family can smoothly manage their current financial obligations and have confidence in their financial future. It means that someone can maintain their financial lifestyle, even when shocks happen.
Financial Health is measured across four elements: Day-to-Day Financial Management, Resilience to Shocks, Planning for the Future, and Financial Confidence.
Research conducted by Finscope Uganda in 2023 revealed that:
- Seven out of ten Ugandans are operating a personal budget deficit, spending more than they earn every month
- 94% of Ugandans faced an unexpected financial event in the past 12 months; up from 37% in 2018
- 57% of Ugandans track the money they receive and spend; up from 47% in 2018. This is progress, but it implies that 43% still do not
- Only 11% of Ugandans are satisfied with their current financial situation.
- Seven in ten Ugandans have no concrete long-term financial plans; they are living day-to-day, with no strategy for the future.
- Furthermore, 60% of adult Ugandans are not confident in their financial plans for old age.
- Only 2% of Ugandans have formal insurance in their own name; leaving 98% exposed to the full financial impact of illness, death or disaster, and
- 50% of Uganda’s youth do not have a strategy to be financially secure in the future.
It is important to note that Financial Health is not about how big your earnings are; rather, it is about how you handle the money you receive, and how today’s earnings can be used to create a buffer for the rainy day. Put differently, financial health is about how long one can maintain a financial lifestyle when there are major changes in circumstances, such as earnings.
Two people can earn sh500,000 a month, but one could spend everything ending the month with a borrowing, while the other could use the same amount to pay bills and save a portion. Same income, very different financial health status.
From the foregoing illustration, FinScope Uganda 2023 found that seven out of every ten Ugandans are running a personal budget deficit; spending more than they earn every month. Not because all of them earn too little, but because many have never been equipped with the tools to manage what they have.
The Shift In Consumption Trap
One mistake many of us make is increasing our spending every time our income goes up. You get a salary increment and suddenly move to a more expensive house, buy a new phone, prefer more expensive meals and then take a loan top-up. This is what we call a shift in consumption.
The result? Six months later, you are earning more, but still saying ‘money is not enough.’ This is financial imprudence.
Financial Health requires a clear differentiation of needs from wants. Before you spend, ask yourself: Is this purchase necessary? What do you lose if you do not buy it? Where does it sit on your scale of preference?
This brings us to debt which requires significant discipline. Before you incur any debt, ponder the following questions; Why are you borrowing at this particular time? Can the borrowing be postponed; perhaps your liquidity position may improve? Where are you sourcing the money from, and who is your creditor? What is the relative cost of the alternative credit sources? What is your capacity to service and pay back the debt – and how are you going to pay back?
Therefore, before taking a loan, ask yourself: will this loan improve my financial position or simply increase my monthly cash outflow burden?
An Illusion of Visible Wealth
One important principle of personal financial discipline is never to judge your financial health by how people perceive you. A new car, expensive outfits or a mind-boggling house do not necessarily mean that someone is doing well financially.
Real financial health is being able to pay your bills, manage your debts, save, invest and handle an unexpected expense without your whole life falling apart. It is about maintaining your financial lifestyle even when major financial shocks emerge.
FinScope 2023 confirmed that: 94% of Ugandans faced an unexpected financial event— yet, most had nothing set aside to absorb it. Illness of a family member, crop failure, theft and income loss were the most common shocks cited. Without an emergency fund, one such event can unravel years of effort.
It is important to note that Financial Health is not about how big your earnings are; rather, it is about how you handle the money you receive, and how today’s earnings can be used to create a buffer for the rainy day. Put differently, financial health is about how long one can maintain a financial lifestyle when there are major changes in circumstances, such as earnings.
Two people can earn sh500,000 a month, but one could spend everything ending the month with a borrowing, while the other could use the same amount to pay bills and save a portion. Same income, very different financial health status.
From the foregoing illustration, FinScope Uganda 2023 found that seven out of every ten Ugandans are running a personal budget deficit; spending more than they earn every month. Not because all of them earn too little, but because many have never been equipped with the tools to manage what they have.
The Shift In Consumption Trap
One mistake many of us make is increasing our spending every time our income goes up. You get a salary increment and suddenly move to a more expensive house, buy a new phone, prefer more expensive meals and then take a loan top-up. This is what we call a shift in consumption.
The result? Six months later, you are earning more, but still saying ‘money is not enough.’ This is financial imprudence.
Financial Health requires a clear differentiation of needs from wants. Before you spend, ask yourself: Is this purchase necessary? What do you lose if you do not buy it? Where does it sit on your scale of preference?
This brings us to debt which requires significant discipline. Before you incur any debt, ponder the following questions; Why are you borrowing at this particular time? Can the borrowing be postponed; perhaps your liquidity position may improve? Where are you sourcing the money from, and who is your creditor? What is the relative cost of the alternative credit sources? What is your capacity to service and pay back the debt – and how are you going to pay back?
Therefore, before taking a loan, ask yourself: will this loan improve my financial position or simply increase my monthly cash outflow burden?
An Illusion of Visible Wealth
One important principle of personal financial discipline is never to judge your financial health by how people perceive you. A new car, expensive outfits or a mind-boggling house do not necessarily mean that someone is doing well financially.
Real financial health is being able to pay your bills, manage your debts, save, invest and handle an unexpected expense without your whole life falling apart. It is about maintaining your financial lifestyle even when major financial shocks emerge.
FinScope 2023 confirmed that: 94% of Ugandans faced an unexpected financial event— yet, most had nothing set aside to absorb it. Illness of a family member, crop failure, theft and income loss were the most common shocks cited. Without an emergency fund, one such event can unravel years of effort.
Financial Safety
Additionally, financial health means being able to use financial services safely and confidently, knowing your rights when a financial transaction goes wrong, understanding the true cost of a digital loan before you accept it and protecting yourself and your family from the growing tide of financial fraud and scams that target ordinary Ugandans daily, especially as we embrace digital financial services.
A person who earns well, saves diligently and invests wisely, but loses everything to a socially engineered SIM swap scam, shared personal credentials or a predatory digital lender is not financially healthy. Financial safety is as much a part of financial health as financial discipline.
It has been recorded that only 2% of Ugandans have formal insurance in their own name. This means that 98% face the full financial impact of illness, death or disaster with no protection. Financial health therefore includes having insurance cover — not as a luxury, but as the financial equivalent of body armour.
The Biggest Gap In Planning
FinScope 2023 found that more than seven out of every ten Ugandans have no concrete long-term financial plans, and 60% are not confident in their financial plans for old age. Financial health means saving not just for tomorrow’s expenses but for retirement, for your children’s education, for the unexpected illness that does not ask for permission before it arrives.
It even extends to estate planning and having a will. It means using tools beyond the basic savings account, financial assets such as fixed deposits and government securities, to using other financial tools and real assets such as livestock, agroforestry and other long-term investments for as long as the same are well protected and or insured. That is the concept of letting your money work for you while you sleep.
It is a paradox that half of Uganda’s youth have no strategy to be financially secure in the future. This is the challenge the Strategy for Financial Literacy 2026–2031 is designed to address: Equipping young Ugandans with practical financial knowledge, skills and behaviours before poor financial habits become life sentences.
A National Commitment
At the national level, Bank of Uganda recognises that financial health cannot be achieved by individuals alone. It requires a supportive environment, one where financial services are affordable and accessible, where consumers are protected from unfair and predatory practices, and where every Ugandan has the knowledge and skills to make informed financial decisions, regardless of where they live, what language they speak or how much they earn.
This is what the Strategy for Financial Literacy in Uganda 2026–2031 aims to achieve. Its theme: Building Financial Capability for Household Resilience and Inclusive Growth, emphasises the need to empower Ugandans with more knowledge and skills to manage money. The strategy recognises that financial health is both a personal responsibility and a national priority, and that closing the gap between access to financial services and the ability to use them well is one of the most important investments Uganda can make in the well-being of its people.
To borrow, to save, to plan, to protect and to know your rights are not separate financial activities. They are the interconnected pillars of a financially healthy life. And, a financially healthy population is the foundation of a resilient, inclusive and prosperous Uganda.
The writing is clear on the wall.
The writer is the deputy governor of the Bank Of Uganda
Additionally, financial health means being able to use financial services safely and confidently, knowing your rights when a financial transaction goes wrong, understanding the true cost of a digital loan before you accept it and protecting yourself and your family from the growing tide of financial fraud and scams that target ordinary Ugandans daily, especially as we embrace digital financial services.
A person who earns well, saves diligently and invests wisely, but loses everything to a socially engineered SIM swap scam, shared personal credentials or a predatory digital lender is not financially healthy. Financial safety is as much a part of financial health as financial discipline.
It has been recorded that only 2% of Ugandans have formal insurance in their own name. This means that 98% face the full financial impact of illness, death or disaster with no protection. Financial health therefore includes having insurance cover — not as a luxury, but as the financial equivalent of body armour.
The Biggest Gap In Planning
FinScope 2023 found that more than seven out of every ten Ugandans have no concrete long-term financial plans, and 60% are not confident in their financial plans for old age. Financial health means saving not just for tomorrow’s expenses but for retirement, for your children’s education, for the unexpected illness that does not ask for permission before it arrives.
It even extends to estate planning and having a will. It means using tools beyond the basic savings account, financial assets such as fixed deposits and government securities, to using other financial tools and real assets such as livestock, agroforestry and other long-term investments for as long as the same are well protected and or insured. That is the concept of letting your money work for you while you sleep.
It is a paradox that half of Uganda’s youth have no strategy to be financially secure in the future. This is the challenge the Strategy for Financial Literacy 2026–2031 is designed to address: Equipping young Ugandans with practical financial knowledge, skills and behaviours before poor financial habits become life sentences.
A National Commitment
At the national level, Bank of Uganda recognises that financial health cannot be achieved by individuals alone. It requires a supportive environment, one where financial services are affordable and accessible, where consumers are protected from unfair and predatory practices, and where every Ugandan has the knowledge and skills to make informed financial decisions, regardless of where they live, what language they speak or how much they earn.
This is what the Strategy for Financial Literacy in Uganda 2026–2031 aims to achieve. Its theme: Building Financial Capability for Household Resilience and Inclusive Growth, emphasises the need to empower Ugandans with more knowledge and skills to manage money. The strategy recognises that financial health is both a personal responsibility and a national priority, and that closing the gap between access to financial services and the ability to use them well is one of the most important investments Uganda can make in the well-being of its people.
To borrow, to save, to plan, to protect and to know your rights are not separate financial activities. They are the interconnected pillars of a financially healthy life. And, a financially healthy population is the foundation of a resilient, inclusive and prosperous Uganda.
The writing is clear on the wall.
The writer is the deputy governor of the Bank Of Uganda