Application of A Probit Model in Assessing Determinants of Formal Financial Saving Behavior of Rural Households: The Case of Sinana District, Ethiopia

Abstract

This paper assesses determinants of formal financial saving behavior of rural households in Sinana district, Ethiopia. A random sample of 267 rural households was selected from four rural kebeles of the district. The study used both a descriptive statistics and econometric model for the analysis of primary data. The descriptive result shows that the average annual income of the respondents was found to be 55,260 ETB. Accordingly, 47.6% of the sampled households practiced a formal financial form of saving. The result of the Probit model depicts that the probability of practicing formal financial saving is positively and significantly influenced by the education status of household head, annual income, annual expenditure and access to extension services. On the other hand, distance from the nearest formal financial institution negatively and significantly influenced the probability of practicing formal financial saving. Therefore, interference of government and policy makers is needed to promote the awareness of rural communities about the importance of formal financial saving behavior.