Economista: The Poor Man’s Savings Club

Is a sou-sou right for you? Here are the pros and cons.

If you contribute $100 each week for 10 weeks you will receive a $1,000 lump sum payout during your designated week.

If you haven’t heard of a sou-sou you’re not alone. But this poor man’s savings club has been all the rage for centuries among Caribbean, Asian and Latino communities in America. Originating in Africa, a sou-sou has gone through many transformations over that last few years, but its basic tenets are still the same.

A sou-sou is a group of people who pool their savings by making regular contributions –weekly, biweekly, monthly – to a fund which is then paid out to each member of the group according to an agreed upon schedule.

So here’s how it works: The group elects a treasurer to collect and distribute the money. A payout schedule is created insuring everyone in the group receives their fair share. Payouts usually range from a few hundred to a few thousand dollars. If you contribute $100 each week for 10 weeks you will receive a $1,000 lump sum payout during your designated week. Sounds good, right? But is it really worth it? This week in Economista, we share a few pros and cons when it comes to joining a sou-sou.

Pros…

Good for the unmotivated saver – While many of us have savings goals we’d like to achieve, taking those steps to actually get there can sometimes be the biggest challenge. But joining a sou-sou will force unmotivated savers to stick to the plan with pressure from other members. Having someone check in periodically and collect your savings can be just the push many of us need.

Good for those who don’t trust banks – After Wall Street’s financial collapse, many banking customers have been disgruntled and upset with the banking industry, as demonstrated by the Move Your Money campaign. If you don’t trust the big banks or you’re simply fed up, starting your own savings community may be the route for you.

Creates financial literacy in communities – It’s important to discuss finances and money now more than ever. The financial crisis has lifted the veil, bringing to light people who were not financially stable and those who were not as stable as once thought. Creating a small community of savers will give members the chance to learn more about how their money works and potentially open the door to bigger financial opportunities.

Cons…

No interest – Unfortunately, while members do receive a lump sum payment on a designated day, there is no interest paid on the money put in. Even no-minimum money market accounts will yield 1.3% interest compounded which means you’re also banking a little passive income.

Lump sums encourage large spending – Once you receive the few hundred or thousand dollars payout – in cash – members may be encouraged more than ever to spend the funds on sight as opposed to investing or continuing to save.

You’re only getting back what you put in – While the lure of a $1,000 or $5,000 grand payout may seem attractive, the truth is, a sou-sou is not a “get rich quick” scheme. Members do not receive more than they put in, in fact, it’s the same exact amount you put in once the savings period ends.

ACROSS THE WEB
  • http://YAHOO NIDATH SOUTHALL

    YOU ARE SO RIGHT ABOUT THE SOU SOU . I BELONG TO ONE AT MY JOB. I WILL BE RECIEVING MY FIRST PAYOUT AND WILL BE PLACING IT IN A MONEY MARKET ACCOUNT. THIS WAS MY WAY OF ENERGIZING MY SAVINGS ACCOUNT . I PLAN ON CONTINUING TO SAVE THE SAME AMOUNT THAT I GAVE TO THE SOU SOU .

    • Alex PierreLouis

      I’m a Haitian American and I have to say that, this type of savings strategy is widely popular in the Haitian community and other minority communites. Most of my Family who are from Haiti have amassed great savings becuse of this technique. It forces the saver to be deciplined with their finances. It’s a saving tool not and investment. Great article. I wish this would become popular here in the U.S, because it would help increase our savings rate and force people to use more cash instead of running up those credit card bills.

  • ala

    It would be greate if it were popular here in the U.S. in the afro-american community, but not happening. Someone would find a way to corrupt it. i am afro-american, I have realitives from the islands and I participate in the Sou Sou with them. my afro-american friends think it is some sort of get rich quick scheme.

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