Determinants of Households Saving Habit in Urban Oromia: Evidence from Asella Town

Abstract

Low level of household saving habit and its determinants demand public
attentions for effective policy interventions. This study was conducted to
investigate determinants of household saving in urban Oromia with specific
reference to Assela Town. To this end, primary data was collected from
household using multistage sampling. First, based on strata of whole
peripheries), out of eight kebeles were selected purposively. Then, using
simple random sampling household were proportionately selected from sex
of household head -based strata formed for selected kebele. Accordingly, 394
households of which 286(72.6%) and 108 (27.4%) were male and female
respectively were selected. 240 (60.9%) of the respondents were having
saving habit and the other were not. Both descriptive and econometric
methods were employed to analyze data. Binary logit model was utilized to
identify determinants of households saving behavior. Three interrelated
models (log odds, odds ratio, and predicted probability) were estimated. The
results of the descriptive analyses shows that 61% of sample households
practiced saving and the common challenges were low income, preference of
investment in kind and other business, high expenditure. Besides,
econometric analyses shows that 15 of 17 stated variables were found to be
statistically significant in affecting probability of household saving.
Specifically, average income has positive, but age and dependency ratio
were found to be negative effect on probability of household saving.
Furthermore, being married, widowed, or divorced, were higher probability
of saving than the single one. Besides, improvements in level of education to
certificate, diploma or degree and above have higher probability than
illiterate once. Being self-employed household were more savers than
government and private sector employee. Being male, alcohol user, being
non house owner have lower tendency of household saving than their
counterpart. The study recommended that concerned bodies should design
capacity building program through creating awareness on saving, financial
planning and budgeting.