High taxes, low wages, why Kenya’s youth cannot save
For Kenya’s youth and young professionals, the dream of financial independence is increasingly elusive. Despite a growing economy, many find themselves trapped in a cycle of high taxes, stagnant wages, and rising living costs.
Recent data from the Kenya National Bureau of Statistics (KNBS) and the Kenya Institute for Public Policy Research and Analysis (KIPPRA) paint a grim picture of a generation struggling to save and invest.
Kenya’s tax landscape has become more demanding. As of October 2024, the Social Health Insurance Fund (SHIF) replaced the National Hospital Insurance Fund (NHIF), introducing a 2.75 percent deduction from gross salaries, with no maximum limit. Additionally, the Pay As You Earn (PAYE) tax rates have been adjusted, with the highest bracket now taxing incomes above Ksh800,000 at 35 percent.
These changes have significantly reduced disposable income, especially for young professionals. For instance, a monthly salary of Ksh100,000 now faces deductions exceeding KSh 30,000, leaving less than Ksh70,000 for all other expenses.
“This situation is exacerbated by the introduction of a 16 percent fringe benefits tax on employer-provided welfare support, marking the fourth consecutive quarterly increase,”KNBS notes.
While taxes have increased, wages have not kept pace. The average monthly expenditure per adult equivalent in Kenya rose to Ksh8,030 in 2022, up from Ksh7,393 in 2021. However, many youths earn below this average, especially in rural areas.
According to the KNBS statistics, “counties like Turkana and Mandera, average monthly expenditures are approximately Ksh4,203 and Ksh4,521, respectively.”
This disparity means that a significant portion of the youth population is unable to meet basic needs, let alone save or invest. With high living costs and limited income, financial planning becomes a distant dream for many.
Youth unemployment remains a critical concern, particularly in arid and semi-arid regions. KIPPRA reports that these areas experience sluggish labor absorption rates in both public and private sectors, with lower productivity contributing to high unemployment.
Nationally, the unemployment rate for youths aged 15-24 is alarmingly high, further hindering their ability to earn and save.
In urban centers like Nairobi, while employment opportunities are more abundant, the high cost of living and increased taxes still pose significant challenges for young professionals striving to save and invest.
Despite economic growth, poverty remains widespread. KNBS reports that the national poverty headcount rate stands at” 39.8 percent, meaning nearly 20 million Kenyans cannot meet their basic food and non-food needs. This rate is even higher in rural areas, where it reaches 42.9 percent in counties like Turkana, Mandera, and Samburu, poverty rates exceed 70 percent highlighting the stark regional disparities.”
These figures underscore the systemic challenges faced by the youth in these regions, where limited access to education, healthcare, and employment opportunities create a cycle of poverty that is difficult to break.
Even for those who manage to save, investing remains a distant goal. High taxes and living costs leave little room for discretionary spending. Moreover, the lack of financial literacy and access to investment platforms further alienates the youth from the capital markets. While mobile money services like M-Pesa have improved financial inclusion, they primarily serve as tools for daily transactions rather than investment vehicles.
Additionally, the recent tax reforms have increased the cost of living, making it even more challenging for young individuals to allocate funds towards investments.
