5.25.2023

How Can ROSCAs Help Build Generational Wealth?

For parents, saving for your child’s future plays a big part in managing your money. Whether they’re still at nursery, or thinking about buying their first home, you may be looking to give your children a little financial support as they grow up.

And while there are many formal savings tools available, they don’t always cater for newcomers to the UK. Which is why ROSCA committees are so important for building generational wealth.

If you’re already part of a committee, you can use this traditional savings method to plan for your family’s future. If you haven’t joined a ROSCA yet, here are 7 ways they can contribute to generational wealth for your family — and your community.

1. ROSCAs help you teach your children about money

Knowing how to manage your finances is one of the most useful life skills a young person can have. That’s why financial education is often just as important as passing on money itself.

By joining or starting a savings club, you can teach your children how to save money even in an informal way. This gives them the financial knowledge they need to flourish as they grow up, and helps them save money for their own families in the future.

2. Anyone can join or start a savings club

If you’re new to the UK and don’t have a UK credit score yet, you may find it hard to access some loans and formal savings schemes. This is one reason that ROSCAs are popular in many UK migrant communities.

Joining a ROSCA means you can start saving immediately — you don’t have to wait for your credit score to improve. Saving early is one of the most important things you can do to build generational wealth, so it’s a great way to put some money away if you’re still establishing yourself as a UK resident.

3. Pass on your financial traditions to your children

ROSCAs are part of cultural money-saving traditions all over the world. When you’re bringing up a child away from your home country, it’s important to help them understand the ties and traditions that are part of their heritage.

Joining a ROSCA normalises informal savings schemes for children in the UK. It can also encourage them to continue this financial tradition when they’re old enough to start saving their own money, helping them consider and plan for their own future.

Read: 10 reasons to use a ROSCA app.

4. Everyone in your community can save

Part of building generational wealth is supporting the rest of your community to achieve their goals. As your community prospers, it becomes easier for future generations of all families to create and retain wealth.

ROSCAs allow you to save together as a community. Your pay-in helps other people save for themselves and their families — so no matter what life stage each committee member is at, they can pay for what’s most important to them.

5. You won’t lose money on investments

ROSCAs are often used as an alternative to formal investment and savings schemes. And while you won’t earn interest from a ROSCA, you also don’t need to risk losing your money.

With a ROSCA, you’re investing in your own community. As long as you trust the people you’re saving with, there’s virtually no risk of losing the money you pay into your ROSCA fund. Plus, you won’t need to worry about investing in unethical products that violate your values or beliefs.

6. You can use your savings for anything

Certain formal UK saving schemes require you to save for something specific. For example, the Lifetime ISA must be used to buy your first home, or save for retirement. If you withdraw money for any other purpose, you’ll pay a 25% withdrawal penalty (which covers the government savings contributions).

With a ROSCA, you can use your savings for anything. Whether you want to put your kids through university, or send money to your parents back home, you can choose how you spend your savings. You have total control over how much money you put towards building generational wealth for your family.

7. Get your money when you need it

While ROSCAs rely on a turn-taking approach to payouts, some ROSCA organisers arrange payouts so you get your money just when you need it. If you’re saving for something specific — such as a wedding, or a trip to see family abroad — you may be able to schedule the perfect time for your payout. That means your family can benefit from your ROSCA savings immediately, as well as in the future.

Talk to your ROSCA organiser — or start your own committee — to see if you can set a specific date for your payout.