FACTORS AFFECTING SAVING HABITS; ( IN CASE STUDY

OF YIRGALEM TOWN)

HAWASSA UNIVERSITY COLLEGE OF BUSINESS AND

ECONOMICS

DEPARTEMANT OF ECONOMICS

SENIOR ESSAY RESEARCH SUBMITTED TO THE DEPARTMENT OF ECONOMICS IN

PARTIAL FULFILLMENT OF THE REQUIREMENT FOR B.A DEGREE IN ECONOMICS

BY: DEMEKE DEBEBE

ID NO:ECON /0485/07

ADVISOR: ABEBEYAHU

JUNE 2017

YIRGALEM, ETHIOPIA
DECLARATION

I, the undersigned student, hereby declare that, this senior research project is my original
work , which has not been presented for a degree in this/elsewhere university. All sources
of materials used for this study have been fully acknowledged.

Name………………………………………………………………………..

Signature………………………………………………………………….

Date……………………………………………………………………….

I
Confirmation

This research project work is conducted under my supervision and fulfills all requirements
of research standard of the program. I hereby approve the submission of this senior
research project for examination.

Advisor name:________________________________________

Signature:__________________________________________

Date:________________________________________________

II
ACKNOWLEGEDGEMENT

First of all, I would like to thank you my heavenly father GOD, heartily for this endless help
throughout my life. Next, gracious thanks and appreciation is to my principal advisor
Abebayeh (Msc) his valuable comments insight and guidance from which I benefited much.
He sacrifices his precious time and energy to advices this senior research project.

Lastly, but not certainly least, my special thanks go to my parents who helped me for
unlimited financial support and moral support starting from my birth day to until now who
helping me for preparing this paper.

ABSTRACT
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This research paper to find saving problem by using simple random sampling techniques, and
numbers of 80 respondents. The main objective of this study to identify the factors affecting
saving habit of households who they live in Yirgalem town. The descriptive analysis of saving
habit should that of household found to have no saving habit and of them are found to be
saving habits at the time of data collection period. The descriptive analysis should that
educational level, level of income, number of saving association, number of modern saving
institution; cost of expenditure and cost expenditure life are major factors that affect the
saving habits of households who live in the town. Low income level and family size is the
habits of saving affect negatively.

ACRONYMS

IV
CSA= Central static agency

DECSI= Debt Credit and Saving Institution

GDP= Gross Domestic Product

EEA= Ethiopian Economic Association

GDS= Gross Domestic Saving

MOFED= Ministry Of Finance and Economic Development

NBE=National Bank of Ethiopia

ROSCA= Rotating saving and credit association

TABLE OF CONTENTS PAGE

V
Declaration………………………………………………………………………………………………………..I

Confirmation………………………………………………………………………………………………………II

Acknowledgments………………………………………………………………………………………………..III

Abstract……………………………………………………………………………………………………………….IV

Acronym…… ……………………………………………………………………………………………………….V

Table of Content………………………………………………………………………………………………….VI

List of tables…………………………………………………………………………………………………………..IV

CHAPTER ONE

1. Introduction………………………………………………………………………………………………………1

1.1 Background of the study…….…………………………………………………………………….…….1

1.2 Statement of the problem………………………………………………………………………….……2

1.3 Objective of the study………………………………………………………………………………..……3

1.3.1General objective…………………………………………………………………………………….……3

1.3.2Specific objective…………………………………………………………………………………………3

1.4Scope and limitation of the study……………………………………………………………………3

1.5Hypothesis……………………………………………………………………………………………………3

1.6Significance of the study…………………………………………………………………………………3

1.7Organization of the study…………………………………………………………………………………4

CHAPTER TWO

2. Literature review……………………………………………………………………………………………………….5

2.1 Theoretical basic of saving behavior………………………………………………………………………….5

2.2The life cycle of hypothesis………………………………………………………………………………………..5

2.3The permanent income hypothesis……………………………………………………………………………5

2.4Current income hypothesis………………………………………………………………………………………6

2.5Classical and Keynesian debate………………………………………………………………………………..6

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2.5.1 Classical………………………………………………………………………………………………………………6

2.5.2 Keynesian……………………………………………………………………………………………………………6

2.6 Potential determinants of private saving…………………………………………………………………7

2.6.1 Government policy……………………………………………………………………………………………….7

2.6.2 Income and growth variable………………………………………………………………………………..7

2.6.3 Financial variable………………………………………………………………………………………………8

2.6.4 Demographic variables……………………………………………………………………………………….8

2.6.5 External variables………………………………………………………………………………………………8

2.7 Financial sector development………………………………………………………………………………8

2.8 Saving habits in Ethiopia………………………………………………………………………………………9

2.9 Issues on saving mobilization………………………………………………………………………………10

2.10 Empirical literature……………………………………………………………………………………………10

CHAPTER THREE

3 METHODOLOGY……………………………………………………………………………………………………12

3.1 Method and procedure…………………………………………………………………………………………12

3.1.1 Description of the study area ………………………………………………………………………………12

3.1.2 Data sources and method of data collection…………………………………………………………12

3.1.3 Research design and procedure……………………………………………………………………………12

3.1.4Sample size and sample techniques………………………………………………………………………13

3.1.5 Method of data analysis………………………………………………………………………………………13

CHAPTER FOUR

4 Data analysis and presentation…………………………………………………………………………..14

4.1 Socio-Economic Activity………………………………………………………………………………………….14

4.1.1 Occupation distribution of respondents………………………………………………………………..14

4.1.2 Current income …………………………………………………………………………………………………..14

VII
4.1.3 Sex of households and income……………………………………………………………………………..15

4.1.4 Ages of households and income………………………………………………………………………….16

4.1.5 Education level and source of income…………………………………………………………………17

4.1.6 Educational level and income………………………………………………………………………………17

4.2 saving potential……………………………………………………………………………………………………..18

4.2.1 Educational level and saving……………………………………………………………………………..19

4.2.2 Age distribution of households and saving…………………………………………………………20

4.2.3 Sex composition of households and saving…………………………………………………………21

4.2.4 Source of income and saving……………………………………………………………………………..21

4.3 Expenditure pattern of households……………………………………………………………………..22

4.3.1Expenditure for the consumer durable goods…………………………………………………..22

4.3.2Expenditure for social (cultural) value……………………………………………………………..23

4.3.3Expenditure for children education…………………………………………………………………23

4.4 Forms of saving…………………………………………………………………………………………………23

4.5 purpose of saving ……………………………………………………………………………………………….24

4.5.1 Interest rate households get from bank due to saving their money at bank…………24

4.6 Factors affecting saving………………………………………………………………………………………….25

4.7 Advantage and disadvantage of bank and informal saving…………………………………….26

CHAPTER FIVE

5 CONCLUTION AND RECOMENDETION…………………………………………………………………..27

5.1 Conclusion…………………………………………………………………………………………………………….27

5.2 Recommendation……………………………………………………………………………………….…………27

5.3Reference

5.4 Appendix

VIII
List of table

Table 1 Current income of household............................................................................................. 14

Table 2 Sex of household and income.............................................................................................15

Table 3 Age of household and income.............................................................................................16

Table 4 Educational level and source of income........................................................................17

Table 5 Educational level and income of household.................................................................17

Table 6 Saving potential of household…………………………………………………………………18

Table 7 Educational level of household and saving…………………………………………….19

Table 8 Age distribution of house hold and saving………………………………………………20

Table 9 Sex composition of household and saving…………………………………………….21

Table 10 source of income and saving………………………………………………………………..21

Table 11 Expenditure pattern of household……………………………………………………….22

Table 12 Forms of saving………………………………………………………………………………….23

Table 13purposeofsaving………………………………………………………………………………….24

Table 14 Interest rate outlook of household……………………………………………………24

Table 15 Advantage and disadvantage of formal and informal saving……………..26

IX
 CHAPTERONE
Introduction
1.1. Back ground of the study
Saving as international level it is the process of setting aside portion of income. It uses for
future or resource accumulated in this way in over given period. Saving may take form of
bank deposit and holding on hand. This personal saving has two primary functions. First,
saving provides the economic security of a safety net. Second saving leads to accumulation
of wealth that enables individual to improve their living standard and to respond
opportunities (Gokhale, 2000). The sum of savings individual household is the national
savings.

The total national saving measured by excess of national income over consumption and
expenditure of the government (Todaro, 2014). There is growing recognition of the
importance of financial education as it relates to saving (Green Wald et al, 2001). According
to neoclassical vision of life cycle model note that decline in government saving. It also well
tends to for fair consumption of discourage saving by shifting the too burden from present
to future generation. Sherraden et al (2007), says that the extent to which an individual
understand the process and benefit of asset accumulation is likely to affect their
willingness to save.

The main domestic source of funds for capital investment is household saving.
Development economics recognized for several decades the importance of mobilization of
domestic savings for economic growth in developing country. Those positive relationship
between saving / investment and economic growth as long been an established fact in
economic (Schmidt-Hebbel et al, 1996). According to Deaton (2005) and Rogg (2006),
serious problem confronting poor country including Ethiopia is saving and investment gap.
Because of this gap, these countries faced challenges to finance investment needed for
growth from domestic saving. The average growth saving rate as percentage of GDP of
Ethiopia in 21 % (MOFED 2012), saving is a way to smooth income and to face shocks.
Hence better understanding of household saving behavior is important.

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1.2. STATEMENT OF THE PROBLEM.

National saving is important for the economic development of the country. Because,
investment is generated through saving. Country that having higher saving rate enjoy the
higher growth rate and high employment and output. Saving is an indicator of economic
development where it is used to achieve economic growth in any developing country
(Abdul Malik and Baharum Shah, 2007). Krieckhours (2002) stated that countries
characterized by less efficient capital markets, have ample dependence on domestic saving
to finance their development project. The total national saving measured by as excess of
national income over consumption and government expenditure (Todaro 2014).

In year 2002 – 2008 Ethiopia GDP growth at every rapid of over 8% per annual well above
the financial inter mediation remain weak and also higher domestic saving. In year 2012
growth domestic saving in Ethiopia was lasted measured at 16.41% according to World
Bank. This growth domestic saving calculated as GDP less final consumption expenditure
(www.tradingeconomics. /Ethiopia/g/). Most of developing countries have lower rate of
saving habits. So that improving saving habit is a primary goal for the people living in this
part of the world (Michael et al 2001). Improving saving habit of an individual is given
attention to look a variety of saving services used by people or customer in country.
Improving dependence not only an attending of government provider, but also appropriate
execution of recommended component of saving such as; household in community and
institution or sectors. So that the following important issues is identified.

 Saving habits and institutions of saving area have become increasingly important for
safety of the employees.

 Investigation of factors associated with saving habits assumes critical importance.

 Provision of saving services varies widely across individual in Ethiopia.

 Understanding this variation at the individual and in the community level order to
successfully implement any saving related policies and programs.

Therefore, the researcher raises the following questions to fulfill the gap. Those are:

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 1. What are the mains factors that affect saving?

2. What the influences of traditional practices on saving habits?

3. What is the importance of the establishment of modern saving institutions toward

increment saving?

1.3. OBJECTIVES OF THE STUDY

1.3.1. GENERAL OBJECTIVE

The aim of this study is to find out the factors that affects saving and determinants of
saving in Yirgalem town.

1.3.2. SPECIFIC OBJECTIVES

The specific objective of this study is:

1. To investigate the factor that affect savings.

2. To examine the traditional practices that affects saving.

3. To identify the importance of the establishment of modern saving institutions towards

the increment of saving.

1.4. Scope and limitation of the study

This study focus on the performance and constraint of saving in case of Yirgalem town.
In this study shortage of time, finance, and available of data are difficult for study.

1.5 Hypothesis

The impact of interest rate on the saving was significance in Yirgalem town. The
impacts of income on performance of saving were positive in Yirgalem town.

1.6 SIGNIFICANCE OF THE STUDY

Assessing saving habits is very important to understand and evaluate the achievement
gained in the implementation of saving program. It is also source of information for the

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employees about the benefit of saving habit for policy makers, planners, and researcher
understanding of the determinants of saving habit of employees in the study area. Also
it may serve as important tool for any possible information towards improving saving
habits.

Also about outcome of this study may serve as source for other studies which focus
similar topics. The study contributes items of knowledge and indicates the possible
solution to eradicates the bottleneck of the saving / habit of saving/ that are affect
saving and to alleviate poverty by increasing of domestic saving. The study also creates
awareness in the society of Yirgalem town regarding to saving.

1.8 Organization of the study

The study was organized in five chapter, chapter one deals with the introduction part,
in chapter two different literature review, in chapter three focus on the designing of the
method and procedure, chapter four the descriptive and type of data analysis
techniques were employed .Report results of along with their discussion and chapter
five draws conclusion and recommendation of the finding is presented.

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 CHAPTER TWO

2 LITERATURE REVIEW

This literature review contains: theoretical and empirical review. Theoretical review
contains: the life cycle of the hypothesis, the permanent income hypothesis, current income
hypothesis, classical and Keynes debates potential determinant of private saving, financial
sectors development, saving habit in Ethiopia and issue on saving mobilization are
corporate.

2.1 THEORATICAL BASICS OF SAVING BEHAVIOR

Economist and social scientist often consider saving to be what is left of disposable income
after conception is deducted (Inum and living stone, 1991) but according to Katona (1915)
this is not what average person thinking of as saving.to the average person saving refers to
money put back account or other assets to protect one from future in scurries or to
purchases goods and services.

2.2 THE LIFE CYCLE OF HYPOTHESIS

Modiglin (1950) emphasized that income various syntactically over people’s way of life
and that saving allows of consumer to move income from those timers in life when
income is highly to thus times when it is low. One important reasons that income
various over person life is retirement. To maintain and smooth consumption after
retirement people must save during their working years.

2.3 THE PERMANENT INCOME HYPOTHESIS

Friedman (1957) proposed the permanent income hypothesis to explain consumer

behavior. It is complement of life cycle hypothesis. However, unlike the life cycle
hypothesis. That income follows regular pattern over person’s life time. The permanent
income hypothesis emphasizes that people experience and temporary changes in their
incomes from year to year. Friedman suggested that view current income as the sum of

5
permanent income and transistor income in which the former affect consumption and the
latter is the discrepancy between current income and permanent income affect savings.

2.4 CURRENT INCOME HYPOTHESIS

Keynes (1936) noted that household saving depends on household absolute current
income which is in contrast with life cycle and permanent income hypothesis. In all cases,
household’s saving depends on income. That is households saving determined by the level
of household income.

2.5 THE CLASSICAL AND KEYNES DEBATES

2.5.1 CLASSICAL

The classical economist based on economists based their prediction about full employment
on principle known as Says law, the creation of French Economist J.B say (1821), cited by
Sisay (2012). According to this law, supply creates its own demand. There was nothing to
prevent the economy from the expended to full employment .There would always be
educating demand for the output of thus additional workers because of says law.

Many people view that if households decided to save a portion of their income not all of the
income created by business would return in the form of spending. As a result, the demand
for goods and services would be too small for supply. Some output could remain unsold
business would the react by cutting back on production and lying of workers those causing
unemployment the high dependency ratio. However, classical economist did not see saving
as problem. Saving would not cause reduction in spending because business would borrow
the saved money for investment those, the classical where sure that saving equal’s
investment because of interest rate. Interest rate is determined by demand for supply of
loadable funds, money available to be borrowed.

2.5.2 KEYNESIAN

Keynes (1936), in this general theory of employment, interest rate and many argued that
says law: according to Keynes interest rate adjustment cannot be relied on to make saving

6
equal investment because interest rate not the major motivating force in either the saving
or investment decision. The level of income is the primary factor infusing the amount that
household plan to save. The higher incomes, the greater level of saving, change in interest
rate are relatively minor impact on saving decision. The interest rate is only one factor
infusing the probability of an investment and not the most important factor. If sells are
poor business are unlikely to undertake new investment evenly the prevailing interest is
low. Since the interest rate is not the major force guiding and investment decision, it cannot
much up the plans of severs and investors as consequence, when household want to save
more than business desire to invest, the level of output employment in the economy will
tend to fall.

2.6 POTENTIAL DETERMINANTS OF PRIVATE SAVING

Both theoretical and empirical work on saving have consistently outline the major potential
determinants of saving which can be grouped under the headings of government policies
variables. Financial variables, income and growth variables, demographic variables,
uncertainty measures and external variables (Mediglion, 1920).

2.6.1 GOVERNMENT POLICY

Various actions of government bearing on saving. Among this, the effect of fiscal has
specially been the center of debate. The neoclassical vision of the life cycle model not
that decline in government saving by shifting too burden from present to future
generation and predict that a decline in government saving will causes a decline in
national saving (Dayal, Gulti, 1997).

2.6.2 INCOME AND GROWTH VARIABLES

The relationship between saving of income on the other hand the relationship between the
saving and growth has been major subject of desecration in the growth literature

7
subsistence conception theory suggested that country will high income level tend to have
higher saving rate and the empirical evidence strongly supports that this conclusion
(Edward, 1996).

2.6.3 FINANCIAL VARIABLES

The financial variables that have an impact on saving are usually ones that capture degree
of development of financial sector. These variables are accepted to be special relevant for
development country (Baskin, 1970).

2.6.4 DEMOGRAPHIC VARIABLES

The first of variable under the handing of demographic variables are usually the
urbanization ratio the age distribution of the population of life expectance. These variables
are sometimes termed life cycles variables, as they operate under prediction of the life
cycle and prediction saving theories.

2.6.5 EXTERNAL VARIABLES

External variables that might be relevant to saving are the terms of trades the current
accounts deficit for an open economy model terms of trades increasing saving through
positive effective and wealth and income.

2.7 FINANCIAL SECTOR DEVELOPMENT

The degree of financial sector development and the range, availability of financial assets to
suit severs represent another important factor in promoting savings the expansion of bank
branches and importing the accessibility to bank facility will result in reducing the cost of
bank transactional and thus motivate individual’s savings. As Lewis has put it remarks, if
saving is institution pushed right under individual nose…. people save more than it the
nearest saving institution are some distance way on the other hand if financial institution
well organized stable saving will kept in non-monitory terms such as jewelry and real
estimate,this may defect the main purpose of savings.

8
In short, deeper financial market strengthened prudential regulation of financial institution
help to enhance saving and invest opportunity by offering wider variety of financial
instruments to channel saving also by producing more security (in case of effective
regulation) to investors. However, financial development is also often associated with an
increased availability of credit for consumption relaxing the domestic liquidity constraints.
Saving can be discourages more credits become available, particularly credit for
consumption (Atheketel, sen 2004).

2.8 SAVING HABIT IN ETHIOPIA

In Ethiopian, the effective financial structure has 90% of the productivity asset, which is
composed of 70-80% loan 10-20% liquid investment and the remaining 5% is
unproductive asset composed of land, buildings and equipment. In our country, there are
different traditional financial system, which has long history and permanent contribution
to economic betterment and social wellbeing of society. Traditional institution organized
with essence of cooperation and raise sharing as enabled Ethiopia to experience saving of
financial management within its habit context. Eqqub, Eddir, Mahiber,etc. are some of the
informal financial institutions that shaped the social bonds and interaction
(Gebeyaw,2008).

Eqqub; is an equivalent name of Ethiopia’s for ROSCAC rotating saving and credit an
association during the Italian occupation of 1936 -41 people wanted to retain themselves
from insecurity intricacies of war and urbanization.

Eddir; even if some Eddirs have wider meanings it is mainly for the burial society when
stated during the Italy occupation of 1936-41. Eddir have extended to provide wider long
of insurance services in urban to assist the bereaved financial and monetary. Eddir member
make regular condition is that can be used of feral expenses of financial assistance to
familiar of the decreased and sometimes to cover other costs such as medical expense loser
due to fire and theft (EEA Vole, 1999).

9
 2.9 ISSUES ON SAVING MOBILIZATION

In economic development of any country, financial resources play critical role. As different
researcher pointed out that the available of saving is a precondition for accelerating
growth. Saving defined closely as a resources mobilization requiring an institutional
resource arrangement to encourage of mobilizes savings.Generally, clients cannot
withdraw while they have loaned outstanding (Wedlay, 2002). On the other hand,
voluntary saving are not obligatory part of assessing credit services. Voluntary services are
provided to both borrowers and non-borrowers who can withdraw according to their
needs.

2.9 EMPIRICAL LITERATURE IN CASE OF ETHIOPIA

The study of saving has contribution to change personal behavior and economic growth in
the country. Amhara credit and saving institution (ACCSI) debt credit and saving
institution (DECSI) force more than 65% share in saving clients in rather market
(Befikadu,2007). Higher gross domestic saving (GDS) has improved the saving income
function of employees. The major determinants of domestic savings are demographic
aspect interest too broad, money stage function of disease assertion of infection disease
expect eat.

The result of this study shows expect has high value to saving habit. Tax has a significant
positive effective when it regresses on private saving as cited by (Genanew,2011). Befikadu
(@011) studied saving and economic growth in Ethiopia using annual time serious 30
year’s data (1997-2002) from MOFED, NBE and CSA, macro-economic data. The result
indicated that the vulnerability of the economy to drop out faction, shocks, weak financial
market, infrastructure, lack of understanding on the value of saving and high youth and old
age dependence ratio have been bottle neck for the counter’s growth and saving.

Haro (2012) investigate an empirical study on determinants of domestic saving in Ethiopia

using time serious data from 1974-2009 and non-structure vary model from estimation
result real per capital income broad money supply, current account deficit ratio, in terms of
trade inflation macroeconomic uncertainty and population where found to significant in

10
part on domestic saving. Worku (2008), study determinants of growth in sub-Saharan
African countries empirical evidence from Ethiopia. The study employee time serious data
spanning from 1961-2004 and found that GDP one period long conception expenditure
export and inflation to have statically significant impact on growth domestic saving. The
result of co integration tests indicates that there is a long run relation between real GDP
and real GDS in Ethiopia. Moreover, there is a bidirectional causal relation between real
GDP and real GDS.

Dawit Shaggu (2003)the study indicate the low level income unsuitable expansion of public
sector consumption expenditure, the disincentive effect of monetary and fiscal policies
measures. Adverse terms of trade, lack of sustained economic growth performance are
factor responsible for the low domestic saving of Ethiopia. Abbu Girma (2004) also found
all most similar results. His attempt to identify the main explanatory factor of domestic
saving in Ethiopia. The level of income extends in Ethiopia considerable constraint on
aggregate saving, inflation: financial sector development and lack of sustained economic
growth performance also significantly influence it. Adverse terms of trade also responsible
for the low domestic saving of Ethiopia.

Sisay (2012), investigated on the determinants of rural households saving rate. The study
employees OLS regression to saving function steps to investigate on the determinants of
saving behavior found that dependence ratio and household’s conception ratio affect
saving negatively. However, most of the studies are investigation is based on an aggregate
level of saving. However, analysis of saving at aggregate level may not reflect household
saving behavior and its determinants. Though saving habits plays a role in saving
performance there is no sufficient client literature dialing within generally and particularly.
Hence, this study will aim to fill this gap by its investigation on saving behaviors and
determinants.

CHAPTER THREE
11
 METHODOLOGY

3.1 Method and procedure

3.1.1 Description of the Study area

Yirgalem is a populated place in the state of southern nation and nationalities and people’s
regional state (SNNPRS) it is located at an elevation of 1777meters above sea mean level
and its population amounts to 36,292. Its coordinates are 6 045’0’’ N and 38025’0’’E in DMS
(Degrees Minutes seconds) or 6.75 and 38 4167 (in decimal degrees), and yirgalem town is
located 328KM south of Addis Abebe in the sidama zone. (Internet)

3.1.2 Data source and method of data collection

The study used both primary and secondary source of data. The primary sources of data
were derived from the answers that respondents had given in the interview. The primary
sources of data were used to obtain information related to forms of saving used by
household. On the other hand, secondary sources were derived from the findings stated in
published and unpublished documents and literatures related to the research problem.
These were based from the recent literatures such as; articles, books, and internet sources
related to households’.

3.1.3 Research Design and Procedure

The major focus of this study was description of information related to saving of
households by collecting cross sectional data from the study area. So, the researcher
method used for the study was descriptive research design to answer research questions
and the total population size of Yirgalem town is 36,292.

3.1.4 Sampling size and sample techniques

12
The study was use simple random sampling because of time consumed and cost constraint.
The sample size was determined according to Yamane (1967) sample size at 95% interval,
the degree of variance 0.5 and level of precision 9% confidence. Then sample size is
computed as follows.

n=where, n= sample size

N=Target population

n= e2=precision level (0.09)

3.1.5. METHOD OF DATA ANALYSIS

In this study, the descriptive methods of data analysis were employed by using table and
percentage. The quantitative and qualitative data was used in study. The quantitative data
was organized make meaning full interpretation of the result to draw a conclusion and
recommendation.

CHAPTER FOUR
13
 DATA ANALYSIS AND INTERPRETATION
4.1. SOCIO-ECONOMIC ACTIVITIES
The study conducted using 80 samples, which drawn from two kebeles through simple
random sampling method with regarding to economic activity. We have discussed in the
following.

4.1.1. Occupation distribution of respondents.

The study shows that about 10% of the respondents are self-employed while 90% are
either government or in private. About 62.5% of respondents are employed in government
sector. About 27.5% of respondents are employee in the private sector.

4.1.2. Current income

Table 1: current income of household.

Monthly income Frequency Percentage Saving in % No saving in %

Below 500 24 30 27.5 2.5

500-1000 12 15 12.5 2.5

1000-1500 14 17.5 12.5 5

1500-2000 0 0 0 0

Above 2000 30 37.5 35 2.5

Total 80 100 87.5 12.5

Source: survey May, 2017

Income is one determinant of saving habits of the households. As can be seen from the
above table, 30% of the households earned monthly income less than 500 birr can save
about 27.5% and which cannot save about 2.5%. Besides 15% of household’s income fall
under the category of 500-1000 birr. From the category of 1000-1500 birr, 12.5% of the
households can save and 5% cannot save from their earned income. From the category of

14
above 2000 birr, is the most saver rather than the other by saving about 35% and 2.5% not
save from their earned income.

4.1.3. Sex of households and income

Table 2: sex of households and income

Monthly income Male in % Female in % Total

Below 500 22.5 7.5 30

500-1000 12.5 2.5 15

1000-1500 10 7.5 17.5

1500-2000 0 0 0

Above 2000 37.5 0 37.5

Total 82.5 17.5 100

Source: survey May, 2017

From the above table 2, a scan be seen the composition of sex and income from this table
male headed households. They are better position to earn more income. So, sex of
household heads is an important determinant income more income possession. Also from
the above table majority of the female (7.5%) earn monthly income of less than 1500 or
equal to 1500 birr. In contrast the majority of the male (37.5%) of them earns monthly
income more than 2000 birr.

4.1.4. Age of households and income

Table: 3 Age of households and income

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 Monthly 18- 30 in 31 -45 46 -56in % 57 – 59 in Above 60 in Total in %
income % In % % %

Below 500 22.5 5 2.5 0 0 30

500 -1000 15 0 0 0 0 15

1000 -1500 12.5 0 2.5 0 2.5 17.5

1500 -2000 0 0 0 0 0 0

Above 2000 0 15 17.5 5 0 37.5

Total 50 20 22.5 5 2.5 100

Source: survey May, 2017

The above table 3 shows that the composition of age households and earned income they
get in monthly. As can be seen from above table, the majority of respondents 22.5% of
household earned income below 500 birr and categorized in the age group 18-30 years.
Next to this 17.5 % of the household or respondents in the age 46-56, those cash incomes
above 2000 birr.

4.1.5. Education level and source of income

Table: 4 education level and source of income

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 Education level Self-employed Government Private Total
in % employed in % employed in %

Illiterate 2.5 0 2.5 5

Elementary 2.5 2.5 2.5 7.5

Secondary 0 5 2.5 7.5

Preparatory 5 2.5 5 12.5

Diploma and 0 52.5 15 67.5

above

Total 10 62.5 27.5 100

Source: survey May, 2017

The above table 4: show that educational level of household related to their sources of
income. As we can see from table 52.5% of household employed by government are
categorized under diploma and above educational level. This 52.5% of household are major
covered when we compare with others educational level of self-employed and private
employed.

4.1.6. Educational level and income

Table:5 educational level and income of household.

Monthly Illiterate in Elementary Secondary Preparatory Diploma Total

income % in % in % in % and

above in %

Below 500 2.5 2.5 5 5 15 30

500-1000 0 0 2.5 0 12.5 15

1000-1500 2.5 2.5 0 2.5 10 17.5

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 1500-2000 0 0 0 0 0 0

Above 2000 0 2.5 0 5 30 37.5

Total 5 7.5 7.5 12.5 67.5 100

Source: survey, May, 2017

As can be seen from the table 5, the educational level almost increases the income of
household. The majority of respondents (30%) earned above 200 birr attend diploma and
above diploma educational level. From this table we conclude that as educational level
becomes increase the level of household income become increase.

4.2. Saving potential

Table:6 saving potential of household

Saving Frequency Percentage

Yes 70 87.5

No 10 12.5

Total 80 100

Source: survey May, 2017

The table 6 shows that the most of respondents saves from their income. This may reflect
the stress on households to satisfy their needs for the future by saving. Generally, thus
show that households, who participate in the study out of 100%, 87.5% respondents have a
capacity to save from their income. Due to this fact now, a time being the habit of saving
households in Yirgalem town changed.

4.2.1. Education level and saving

Table: 7 Educational level of households and saving

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 Educational Frequency Percentage Saving in % No saving in %
level

Illiterate 10 5 5 0

Elementary 11 7.5 5 2.5

Secondary 11 7.5 7.5 0

Preparatory 13 12.5 7.5 5

Diploma and 35 67.5 60 7.5

above

Total 80 100 85 15

Source; Survey May, 2017

Following the income distribution of the sample households, it is important to consider the
education attainment of the respondent as educational is one, more important than the
other. As can be seen from table 7, 5% of households are illiterate, 7.5% of households are
attained elementary and secondary educational levels and 12.5% of households are
preparatory educational level. As can be seen from the above table 7, almost of the
educational level increase the saving habits of the household also increases. The saving
capacity of respondents regarding to educational level out of illiterate, 5% of respondents
can save from their income. Also, from elementary educational level of 5%, from secondary
educational level 7.5%, from preparatory educational level 7.5%, from diploma and above
60% of them have the habit of saving habit from their earn income.

4.2.2. Age distribution of households and saving

Table: 8 Age distribution of households and saving

Age Frequency Saving in % No saving in %

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 18-30 16 17.5 2.5

31-45 54 60 7.5

46-56 8 10 0

57-59 0 0 0

Above 60 2 2.5 0

Total 80 90 10

Source: survey May, 2017

The above table 8, show that the age distribution of household related to the saving habit.
As known that participatory assessments have indicated that household head hearing old
age is factor that affects the well-being of households. Hence, the old age households saving
habit are less. So, the table shows that majority of respondents (60%) which categorized
between 31-45 years old saving from their earn income where as 7.5% of respondents no
saving from their income with the same category of age. 17.5% of respondents which
categorized under the age group between 18-30 are the next to saving from their income
and 2.5% of respondents not saving from their income.

4.2.3. Sex composition of households and saving.

Table: 9 Sex compositions of households and saving

Sex Frequency Saving in % No saving in %

20
 Female 16 15 5

Male 64 72.5 7.5

Total 80 87.5 12.5

Source: survey May, 2017

As can be seen from table 9, the percentage of those have saving habit about 15% of
respondent are female. The percentages that have no saving habit about 5% respondents
are also female. The percentage those having saving habit about 72% and no have saving
habit about 7.5% of respondents are male. The fact that male does not expend their income
alone for consumption purpose in widely and they have more experiences how to allocate
their income properly. Even though, males earn more income than females as can be seen
from the tables.

4.2.4. Source of income and saving

Table: 10Source of income and saving

Source of income Frequency Saving in % No saving in %

Self-employed 8 10 0

Government 50 57.5 5
employed

Private employed 22 20 7.5

Total 80 87.5 12.5

Source: survey May, 2017

As can be seen from the table, about 10% of respondents which saving from their income is
self-employed, about 57.5% of respondents are government employed and 20%
respondents which saving from their income are private employed. From these three
sources of income majority of respondents are who are employed in government sector is
the most saving from their income.

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4.3. Expenditure pattern of household

The followings table explains the condition household expenditure. About 57.5%
respondents expand their income for the consumer durable goods, 22.5% of respondents
of respondents for social values extravagant and 20% of respondent expands their income
for children education purpose.

Table 11; Expenditure pattern of house holds

Expenditure pattern Frequency In %

Consumer durable goods 46 57.5

Social value(extravagant) 18 22.5

Children education 16 20

Total 80 100

Source, Survey may 2017

4.3.1Expenditure for the consumer durable goods

57.5% of household’s expenditure is for consumer durable goods that are households in
the study are spent more their income for consumer durable goods. This adversely affects
the saving potential of the people or households. The reason for the consumer durable
goods prices increases from time to time. Therefore, inflation is one factor that affecting
saving religious and makes them not save more.

4.3.2Expenditure for social (cultural) value

22.5% of households spent income for social value such as religions issues, beliefs, weeding
and etc. that accelerates their consumption and deteriorates their saving. This because
religions factor makes them not save more.

4.3.3Expenditure for children education

22
20% of household’s income spent for children education purpose the fact that households
in this area are exposed to less transportation and more of them attained their children in
public school. The public school does not have regular payment. Therefore, the expenditure
for this purpose is less compared with other expenditure.

4.4 Forms of saving

Table 12: Form of saving

Forms of saving Percentage

Bank 75

Iqqub 15

Micro saving 10

Total 100

Source: survey may 2017

As can be seen from table11,75% households are saving in the Bank,15%of households are
saving in the form of Iqqub and 10% of households saving in the form of micro saving. The
most of households are saving in the bank their financial income. Because the availability of
modern saving institution is short distance. Next to this 15% of households are saving their
income informal institution such as group saving institution Iqqub. The contribution of
informal saving institution not deny to boost saving.

4.5 Purpose of saving

The following table shows the purpose of saving 52.5% of households are saving their
income for the emergency,25% of households are saving their income for children
education and 22.5% of households are saving their income for investment purpose. This
shows that households in the study area saving more of their income for overcoming for
emergency. Next to this they saving their income for the purpose to cover for children
education.
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Table13; Purpose of saving
Purpose of saving Frequency In %

Emergency 42 52.5

Children education 20 25

Investment 18 22.5

Total 80 100

Source, Survey may 2017

4.5.1 Interest rate households get from bank due to saving their money at bank

Table 14; Interest rates outlook of households

Interest rate Frequency In %

High 14 17.5

Medium 28 35

Low 20 25

Very low 18 22.5

Total 80 100

Source Survey may 2017

As we have been seen from the table, regarding to interest rate 17.5% of households are
respondents that interest rate which payee by saving institution is high,35% of households
are respondents answer the interest rate is medium,25% of households responds that the
interest rate is low and 22.5% of households responds that interest rate is very low. Due to
this fact the households did not attract by the interest rather than safe custody for their
liquid assets.

4.6 Factors affecting saving

24
The factor that affecting saving observed in this study as we have desiccation previews
section those affecting directly and indirectly.

Traditional Practices: traditional practices reflect value and beliefs holds by members of a
community for periods often spanning generation. Every social group in the yirgalem town
has specific traditional practices and beliefs. Some of which are beneficial to all members.
While other are harmful to specific group. These practices are affecting saving directly and
indirectly. Traditional practices affecting saving such as tescar, holiday, birthday, religious
and etc.

Household wealth: the decisions to save depend on direct and indirect cost to the
households and their capacity to afford them. Therefore, the saving capacity of households
is depending on their income or wealth.

Education: it assumes that educated parents are more able to recognize the long term
benefits of saving and thus provide their children with better education. Therefore,
education is one of the determinants of saving in this study area.

Size and Composition of household: the size and composition of family another factors that
affect saving habit. As family size increase consumption and expenditure is also increase.
This in returns decrease the amount of saving in the households.

Interest rate: interest rate is one of the determinants of saving. However, in this study the
impact of interaction rate is insignificant.

4.7 Advantages and disadvantages of bank and informal saving:

Table 15; Advantage and disadvantage of formal and informal saving

Advantage Disadvantage Total

Formal saving(bank) 76 4 80

Informal saving 24 56 80

25
As we have seen from the table above the advantages of bank saving by percentages 95%.
Because of to protect from thief, the damage of fire and to increase profit by interest role.
Saving at bank is more advantage rather than other saving institution. Disadvantages
saving at bank by percentage 5%. Because of to restrict by time and low interest rate.
Saving at bank has some disadvantage and transduction.

The advantage of informal saving 30%. Because of to increasing profit for short period of
time. So at this time more advantage and disadvantage of informal save by percentage 70%.
Because of to damage such as thief and most of the person’s disadvantage. Because of pay
only to rotating much system is not having benefit at this time disadvantage

CHAPTER FIVE
CONCLUSION AND RECOMMENDATION
5.1 CONCLUSION
The main objective of this study is to identify factors that affecting saving habits of
households who live in Yirgalem town. The descriptive analysis of saving habit should that
of households considered 12.5% are found to have no saving habit and 87.5% of them are
found to be saving habits at a time data collection period.
26
The descriptive analysis should that educational level, level of income, number of saving
association, number of saving institution, cost of expenditure and cost of extravagance life
are the major factors that affect saving habits of households who live in the Yirgalem town.

Low educational level and low income level are indicators of low saving habits of
households. In addition, household number or family size is the habit of saving negatively.
The study indicated this interest rate is not significant predictors of saving habits in the
household.

5.2 Recommendations

To minimize the factors that hinder saving habits of households in the Yirgalem town, the
level of education and income should be considered when households has a complicated
living condition.

Since the level of income one of the problems identified in this study. So, the government
should be take measurement to increase the income of the dwells.

The inflation rates also one of the problems identified in this study. So the government is
give attention for price stabilization in order to increase saving volume and coverage.

Extended modern saving institution their service and improves their quality of service.

To do so avoiding or reducing the social value expenditure by work more on awareness

creation towards saving given incentives to boast saving.

REFERENCE

 Abdul-M, Bahaumshah, A, Z (2007) ‘’what happened to saving during the financial

crisis a dynamic panel analysis of Asia 5 countries’’. Eon change 38,257-275.

 Abu Girma (2004) on the determinant of domestic saving of Ethiopia proceeding of

the second international conference on Ethiopia A.A; EE.A.

 Athukorala. Pand K.sen (2004), the determinant of private saving in India, world

 development (electronic version).

27
 Befekadu Mulatu, (2011), saving and economic growth in Ethiopia.

 Brady et al (2008); the rolling cross-sectional university of Michigan press retrieved,

July 13,2008

 Dawit Sheggu (2003), causal relation between growths domestic saving the second
international conference on the Ethiopia economy, A.A; EEA

 Deaton, A.S (2005), Franco Modigglia and the life cycle theory of consumption Banca
nationaledel lovoro quarterly review.

 Ethiopia economic association vol. III (2003/04) research institution (A.A).

 Gebeyaw Aychile (2008), financial performance of national bank of Ethiopia

worker’s savings credit association with social emphasis to adjustments.

 Karim Moussaly (2001), participation in private retirement savings plans, 2008.

 Keynes (1936), the general theory of employment, interest rate and money, and
London; Macmillan.

 Michael P, Todaro (2006), development economic. New York University.

 MOFED (2012); macroeconomics developments in Ethiopia.

 Say. J.B (1821) a treats on political economic /London.

 Schmidt –Hebbel K, Serven. L, and Solmano A. (1996), saving and investment;

paradigm, Puzzles, policies. World Bank research observer, 11(1), 87-117.

 Todaro (2014), economic development, 12th edition, published in 2014, at New York
University.

 Williamsan J.G (1968) personal saving in developing nations; an enter temporal

cross-sectional data from Asia.

 Worku Gebeyehu (2008), determinant of growth domestic saving in Ethiopia (AA):

empirical evidence from Ethiopia.

28
 APPENDEX

Hawassa University

College of Business and Economics

Department of Economics

Questionnaires

29
First of all, thanks for your cooperation. Dear respondents this questionnaire serves as the
source of information to the research paper. Also, this questionnaire is prepared for the
purpose of gathering relevant information on the factor that affect saving habit in Yirgalem
town.

Instruction

No need of write your name

Please tick in the provided box

Part 1; General information

1. Age; A.18_30 B.31-45C.46-56 C.57-59 D. above 60

2. Sex; A .Female B. Male

3 .Educational level; A. Illiterate B. Elementary C. Secondary

D. Preparatory E. Diploma and Above

4. Which type of employment? A. Self –employed B. Employee

5. Are you employed? A. Yes B. No

6. If the question number 5 yes, what kind of employment?

A. Government B .Private

7. If question number 6 answers is government which kind?

A. Temporary B. Permanent C. other specify

Part 2: Income related question

1. Amount you get birr in month(income)

A. Below 500 B. 500-1000 C. 1000-1500

D.1500-2000 E Above2000

2. Do you have additional income? A. Yes B. N0

Part3: Expenditure related question

1. How much total your monthly expenditure in birr?

30
A. Below 500 B.500-1000 C. 1000-1500 D. 1500-2000
E. Above 2000

2. For what purpose you spend from your income?

A. Investment B. children education C. durable goods consumption

3. Your monthly expenditure for child education in birr.

A. Below 100 B.100-500 C. 500-1000 D.1000-15000

E. Above 1500

4. How much your monthly extra consumption expenditure (religious value)

A. Below 100 B.150-250 C.250-350 D. 350-450

E.Above 450

Part4: Saving related question:

1.Do you save ?A Yes B. No

2.If your answer in question 1 is yes, in what form you save?

A .Bank B. IQQUB C. Micro-saving D. other specify

3.For what purpose you saving?

A. Emergency B. for investment C. for child education D. other

specify

4. How do you look the interest rate payee by the bank?

A. High B. Medium C. Low D. very low

5. What are the cause of traditional practices and customs to affect saving? A. Tascr _
B. birth day C. holiday D .Religious E. other specify

6. What are the causes of hinder saving activity?

A. Religious B. Custom C low income D. other specify

7 .What do you think about the modern method of saving?

A. Has advantage B. has disadvantage

8. If your answer of question 7 has advantage, explain briefly

______________________________________________________________________________________________.

31
9 What are advantages of traditional saving practices?

A. Save time B. minimize cost of transportation C. other specify D All

10. Which one preferable for you in order to save?

A. Bank B. IQUB C. other specify

Thank you

32