Household Saving Behaviour and Determinants of Saving In Ethiopia

Abstract

An unprecedented level of investment is required to implement the Growth
and Transformation Plan (2010/11-2014/15) of Ethiopia. Much of the
resource requirement is envisaged to be pulled from local savings. The Plan
envisages a large level of expansion of domestic saving from a low historical
record that would require unprecedented levels of saving mobilization by
financial providers. This would need designing appropriate saving products.
In this paper, we use data collected from 2,000 households and attempt to
contribute towards understanding the saving behaviour of households in
Ethiopia and identifying their specific needs to develop their saving culture.
Our data show that most of our respondents currently save in cash. Also, the
descriptive analysis reveals that male household heads had higher cash
savings than female headed households. In terms of the difference in cash
saving by marital status, widowed households had the lowest levels of
saving. Households with illiterate heads had lower average cash saving. The
study also indicated that lack of investment opportunities does not
discourage households from saving in cash. A substantial proportion of the
sample saved their liquid cash at home. Less than 20% of respondents saved
their outstanding savings in MFIs and banks. Respondents demand secured
and safe financial intermediaries that provide diversified and flexible saving
products with good returns with client-friendly processes. Finance providers
should therefore take note of these facts in designing their saving products.