Abstract
Domestic saving in developing countries remains relatively low compared to the developed World despite its huge significance as a growth and investment stimulant. Recent evidence from Word Bank Development Indicators reveal a decline in the Gross Domestic Savings as a percentage of GDP from 9 percent in 2008 to 5.32 percent in 2018. Kenya’s 2019 FinAccess household survey affirms that households account for a sizeable share of the gross national savings. Although 55 percent of the total adult population hold atleast one formal saving account, gender and geographical disparities in formal saving persist averaging 10 percent and 23 percent, respectively. Viewed against the backdrop of low saving rates and the growing need to enhance saving mobilization to finance Kenya’s overall investment needs, this study utilized binary logit and multinomial probit to model household saving behaviour. The study established that both socioeconomic and household demographic characteristics shape household saving behaviour in Kenya. In particular, uptake of formal saving rises with the level of urbanization and formality of employment but decline with family size. The study recommends investment in financial education and financial literacy programs and promotion of economic activities to boost savings. Keywords: Discrete choice; Saving; Household JEL Codes: G21, C35, D11 DOI: 10.7176/JESD/11-4-10 Publication date: February 29 th 2020
Highlights
The role played by savings in propelling growth and investments cannot be over emphasized
4.1 Econometric Analysis Analysis of household saving behaviour in Kenya follows a discrete choice approach given the non-linearity of choices made
Not having any formal education disadvantages individuals in terms of usage of formal savings. This is evidenced by the 24.2 percent and 17.4 percent higher probability of tertiary education holders saving digitally and non-digitally respectively. These results indicate that educating the public boosts access to formal savings significantly
Summary
The role played by savings in propelling growth and investments cannot be over emphasized. Domestic savings provide the means for capital formation, which acts as a central pillar for economic development. Adewuyi, Bankole, & Arawomo (2010) associated savings with financial stability, economic growth, poverty reduction, sustained development and macroeconomic balance. Harrod and Domar model link variations in countries growth paths to differences in saving and investment rates. For countries that consistently achieve a top growth rate, most of them, record highest rates of investment. Elbadawi & Mwega (2000) demonstrated that high national saving is a prerequisite for avoiding financial pitfalls and the subsequent collapse of growth.
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