MADDA WALABU UNIVERSITY SCHOOL OF BUSINESS AND

ECONOMICS DEPARTMENT OF DEVELOPMENT ECONOMICS

Determinants of Private Saving Behavior in Bale Robe Town:

The Case of Commercial Bank of Ethiopia, Robe Town Branches

A Thesis Submitted to Department of Economics, Madda Walabu

University in Partial Fulfillment of the Requirements for the Degree
of Masters of Science in Development Economics

By: Leul Abebe

Advisor: Semeneh Bessie (PhD)

THESIS PROPOSAL
BALE ROBE, ETHIOPIA
June, 2019

1
DECLARATION
I, the undersigned, declare that this thesis is my original work, prepared under the guidance of
Semeneh Bessie (PhD). All sources of materials used for the thesis have been duly
acknowledged. I further confirm that the thesis has not been submitted either in part or full to
any other higher learning institution for the purpose of earning any degree.

Name ____________________ signature _________________

Advisor ___________________ Signature _______________

I
Approval page

This thesis proposal entitled with “Determinants of Private Saving Behavior in Bale Robe Town:
The Case of Commercial Bank of Ethiopia, Robe Branches” has been presented for approval by
the followings: advisors, Examiners, chairman department of graduate committee, directory of
graduate school and Department head for the proposed work for partial fulfillment of the degree
of Master of Science in Development Economics

Submitted by
Leul Abebe ____________________ ________________
Student Signature Date
Approved by

1. ____________________ ______________
Advisor Signature Date
2. ____________________ ______________
Examiner Signature Date
3. _____________________ ____________________ ______________
Chairman Signature Date
4. _____________________ ____________________ ______________
Department Head Signature Date
5. _____________________ ____________________ ______________
SGS Signature Date

II
ACKNOWLEDGEMENTS

First of all I would like to thank the almighty God for permitting me to accomplish this graduate
study.

My great appreciation goes to Madda Walabu University, school of graduate studies, Faculty of
Business and Economics for providing me the chance of attending the program and
conducting this research.

My special thanks and gratitude to Semeneh Bessie (PhD), my thesis advisor, for his guidance,
comments and unreserved intellectual assistance throughout my research work.

I would like to thank Clients of CBE for allowing me the use of their time to accomplish my
study. Let my especial thanks goes to all employees of CBE, Robe Branches who assist me in
providing necessary documents for research data.

Finally, I wish to express my great thanks to my lovely family who were encouraging and
energizing me to accomplish the graduating program. Let God be with you all the time.

III
 ABSTRACT

The main objective of the study is to assess the determinants of private saving behavior in Bale
Robe town giving special emphasis to Commercial Bank of Ethiopia. Descriptive and explanatory
research designs were used to collect data. A sample size of 384 sample respondents were drawn
from the population by random sampling of probability sampling method with data from primary
source. The quantitative data was analyzed through descriptive statistics and multiple linear
regression analysis were employed. The results of the descriptive analyses showed that the
majority of sample respondents were practiced saving and the common reasons for the clients not
to save are high cost of living (inflation), high expenditure on basic needs, unexpected expenses
and low interest rate. The planning and expenditure controlling habit or the ability to prepare own
weekly or monthly budget of most respondents was found minimal. Besides, the economic analyses
shows that income, occupation and financial knowledge are significant determinants of client’s
savings behavior in the study area. Based on these findings the researcher recommends, due
attention should be given to increase income of society. More financial knowledge programs
should be organized by the financial institution to create awareness. The government should also
include financial knowledge in the educational curriculum of the basic or elementary schools and
higher learning institutions.

Key words: private saving behavior, saving determinants, financial knowledge.

IV
Table of content

DECLARATION ............................................................................................................................. i
Approval page ................................................................................................................................. ii
ACKNOWLEDGEMENTS ........................................................................................................... iii
ABSTRACT ................................................................................................................................... iv
Table of content .............................................................................................................................. v
List of Table ................................................................................................................................. viii
List of Figure.................................................................................................................................. ix
Acronyms ........................................................................................................................................ x
CHAPTER ONE ............................................................................................................................. 1
1. INTRODUCTION ................................................................................................................... 1
1.1. Background of the Study .......................................................................................... 1
1.2. Statement of the Problem .......................................................................................... 3
1.3. Research Questions ................................................................................................... 5
1.4. Objectives of the Study ............................................................................................. 5
1.4.1. General Objective of the Study ................................................................................. 5
1.4.2. Specific objectives .................................................................................................... 5
1.5. Significance of the Study .......................................................................................... 5
1.6. Scope and Limitation of the Study............................................................................ 6
1.7. Organization of the Study ......................................................................................... 6
CHAPER TWO............................................................................................................................... 7
2. Literature Review .................................................................................................................... 7
2.1. Theoretical Framework ............................................................................................. 7
2.1.1. Determinants of Private savings .................................................................................... 8
2.1.2. Income ........................................................................................................................... 8
2.1.3. The Real Interest Rate, Inflation Rate and Government Policies ................................ 10
2.1.4. Demographic Characteristics ....................................................................................... 11
2.1.5. Financial Development ................................................................................................ 16
2.1.6. Expectation of Future Changes in Income .................................................................. 17
2.1.7. Relationship between Financial Literacy and Saving Behavior .................................. 18
2.2. Other Determinants of Private Saving .................................................................... 18

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 2.2.1. External savings ........................................................................................................... 18
2.2.2 Public savings ............................................................................................................... 19
2.3. Theories of Saving .................................................................................................. 19
2.3.1 Life Cycle Theory......................................................................................................... 19
2.3.2 Friedman theory of permanent income ......................................................................... 20
2.4. The Development of Bank in Ethiopia ................................................................... 22
2.5. The Role of Banks in Financial Systems ................................................................ 23
2.6. Empirical Review Determinants of Saving............................................................. 23
2.6.1. Theory ..................................................................................................................... 23
2.6.2. Empirical Studies ......................................................................................................... 24
2.7. Conceptual Frame Work ......................................................................................... 28
3. CHAPTER THREE ............................................................................................................... 29
3.1. DESCRIPTION OF THE STUDY AREA ............................................................. 29
3.2. Research design ...................................................................................................... 29
3.3. Research Approach ............................................................................................................ 29
3.4. Sources of Data .................................................................................................................. 30
3.5. Data Collection Tools......................................................................................................... 30
3.6. Population........................................................................................................................... 30
3.7. Sampling Techniques ......................................................................................................... 30
3.8. Sample size determination ................................................................................................. 31
3.9. Data Analysis ..................................................................................................................... 32
3.10. Definitions of variables .................................................................................................... 33
CHAPTER FOUR ......................................................................................................................... 37
4. DATA ANALYSIS AND PRESENTATION .......................................................................... 37
4.1 INTRODUCTION ............................................................................................................... 37
4.2 Response Rate ..................................................................................................................... 37
4.3. Demography ....................................................................................................................... 37
4.3.1 Gender .......................................................................................................................... 37
4.3.3 Education ...................................................................................................................... 38
4.3.4 Marital Status ................................................................................................................ 39
4.3.5 Occupation Status ......................................................................................................... 39
4.3.6 Family Size ................................................................................................................... 40

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 4.3.7 Income Status ............................................................................................................... 41
4.3.8 Saving Capacity of Respondents .................................................................................. 41
4.4. Descriptive Analysis .......................................................................................................... 42
4.4.1 Challenges of Saving .................................................................................................... 42
4.4.2 Financial Knowledge of Respondents .......................................................................... 45
4.5. General Descriptive Statistics of customers saving behavior ............................................ 50
4.6. Determinants of Saving Behavior of Clients...................................................................... 51
4.6.1. Correlation Analysis .................................................................................................... 51
4.6.2 Coefficient of Correlation ............................................................................................. 51
4.6.3 Correlation Matrix ........................................................................................................ 53
4.6.4 Coefficient of Determination ........................................................................................ 53
4.6.5 ANOVA (Analysis of Variance) a ................................................................................ 54
4.6.7 Multiple Regression ...................................................................................................... 54
CHAPTER FIVE .......................................................................................................................... 57
5.1. Introduction ........................................................................................................................ 57
5.2. Summary of Finding........................................................................................................... 57
5.3. Conclusion.......................................................................................................................... 58
5.4. Recommendation ................................................................................................................ 59
REFERENCES ............................................................................................................................. 61
Appendix ....................................................................................................................................... 68

VII
List of Table

Table 3.1. Number of clients in each branches and sample size ........................................... 32
Table3.2: The dependent and independent or explanatory variables .................................... 36
Table 4.1 Sex of the respondent ............................................................................................ 37
Table 4.2 Age of the Respondents ......................................................................................... 38
Table 4.3 Education level of the Respondents ...................................................................... 39
Table 4.4 marital status of the Respondents .......................................................................... 39
Table 4.5 Occupation of the Respondents ............................................................................. 40
Table 4.6 Family size............................................................................................................. 40
Table 4.7 monthly income of the Respondents ..................................................................... 41
Table 4.8 Saving capacity of the Respondents ...................................................................... 42
Table 4.9 challenges facing respondents not to save ............................................................. 42
Table 4.10 Descriptive Statistics on customers financial knowledge ................................... 45
Table 4.11* respondents understanding of how to invest own money Cross tabulation....... 46
Table 4.12 * habit of financial recording for their income and expenditure Cross tabulation
............................................................................................................................................... 48
Table 4.13* Have little or no difficulty in managing their money Cross tabulation ............. 48
Table 4.14 General Descriptive Statistics of customers financial knowledge ...................... 50
Table 4.15 Showing correlation between variables ............................................................... 52
Table 4.16 showing the coefficient of determination ............................................................ 53
Table 4.17 Showing the Regression Coefficients .................................................................. 55

VIII
List of Figure

Fig.2.1: the conceptual frame work of the study. .................................................................. 28

Figure 4.1 Bar chart showing respondents financial need during retirement. ....................... 47
Figure 4.2 shows respondent’s ability to prepare their timely budget ................................... 49

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 Acronyms
CBE Commercial Bank of Ethiopia

CEX Consumer Expenditure

DC Developed Countries

FDRE Federal Democratic Republic of Ethiopia

EEA Ethiopian Economic Association
GDP Gross Domestic Product
GTP Growth and Transformation Plan
LCH Life Cycle Hypothesis
LDC Low Developed Countries
MOFED Ministry of Finance and Economic Development
NBE National Bank of Ethiopia
NGOs Non-Governmental Organizations
PASDEP Plan for Accelerated and Sustainable Development to End Poverty
SPSS Statistical Packages for Social Science
VIF Variance Inflation Factor
WB World Bank

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CHAPTER ONE

1. INTRODUCTION
1.1. Background of the Study

There is no doubt that both in developed and developing countries, savings play a key role in
economic growth and development by accelerating the pace of investments in the economy. This
argument has been supported empirically and theoretically by the work of various scholars. Harrod
(1939) and Domar (1946) argued that national savings accelerate growth via investment.

For economic development of any country, growth is achieved by investment or capital

accumulation and saving (Mankiw, 2001). It is important in improving the well-being of
individuals and serve as a security at the times of shocks for the households. Saving is being seen
as a method of diminishing the risk resulting from the inability to predict the future and thus acting
as precaution. According to Popovici (2012) unexpected events in the life-cycle of individuals
make saving an important element in fulfilling the financial gap. In the developed countries,
income is generated at a higher rate which encourages people to have more savings and push to
more investment. But in a developing country like Ethiopia, the income standard is almost
uncertain and leads to more consumption rather than saving (World Bank, 2012). Saving
mobilization is also critical for individual welfare in that, at individual level it helps households’
smoothen their consumption and finance productive investments in human and business capital
Karlan et al. (2013).

National saving particularly the individual saving rate in Ethiopia is expected to be very low and
this low level of national saving is expected to limit the expected rate of economic growth of the
country (NBA, 2016/17). According to Ministry of Finance and Economic Development (2010),
one of the major challenges encountered in the past five years of PASDEP implementation is low
level of domestic savings to support the huge demand of the country’s investment for
accelerating growth and development in the process of eradicating poverty. The national saving
was 9% of GDP at the beginning of the growth and transformation plan in 2010/11. Because of
the low level of saving, the national investment of the Ethiopia is dependent on foreign direct
investment rather than domestic investment. Though, foreign direct investment has paramount

1
importance on Ethiopian economic growth and development, its importance is less than the
domestic investment.

The saving mobilization and development of saving habits of a given society have an impact on
capital accumulation and thus on economic growth of a country in general and on the financial
well-being of the individuals in particular. In the case of Ethiopia, achieving and sustaining the
high growth rates set out in Growth and Transformation Plan requires substantial capital formation
and associated resource mobilization.

According to Harrod-Domar growth model, with insignificant domestic saving, a country should
look for foreign aids and debt (Todaro, 2000). In fact, the rate of domestic saving in developing
countries including Ethiopia is believed to be insignificant (WB 2013). However, reliance on
foreign aid and debt is not always imperative due to different socio-economic and political reasons.
Therefore, it is believed that the pattern of domestic saving, particularly individuals’ saving, in the
country should change if higher rate of saving is required.

Improvement in individuals’ saving behavior is believed to be a crucial element for economic

growth. This is more fruitful if channeled to investment. In the process of channeling the
domestic saving for investment, the role of financial institutions is valuable. According to
Bairamli and Kostoglou (2010), strong financial institutions facilitate the flow of funds from
savings to investments. They found that, even though the saving rate of Republic of Azerbaijan
was high, due to the insufficient financial institutions, the high saving was not channeled to
investment and this has retarded economic growth of the country.

Few studies assess the determinants of saving at the individual level generally due to the lack of
data. Using recent econometric techniques, Carpenter and Jensen (2002) and Kulikov, Paabut and
Staehr (2007) identify how household characteristics affect saving behaviour, in Pakistan and
Estonia respectively. Carpenter and al. (2002) focus on the role of institutions which collect saving
and stress the role of formal (banks) and informal institutions (savings committees). They find that
“increased income leads to a greater desire to participate in some form of savings institutions but
that as income increases more individuals shift to the formal sector”. They also find evidence that
the urban-rural differences in bank use is negligible which suggests that formal finance is not
primarily restricted to urban households in Pakistan.

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Analysis of behavior of household saving and its parameters at micro level is crucial in that without
such microeconomic data, it is very difficult to interpret aggregate savings trends at national level
(Orazio and Miguel, 2000). The national saving rate statistics that forms important part of capital
accumulation for economic growth are the aggregated result of household saving. Thus, it is
important to study the saving mobilization and behavior of households to interpret aggregate
results.

In Ethiopia, the saving rate from Gross Domestic Product is lowest when compared with that of
China, Bangladesh and South Africa which have better saving rates (Commercial Bank of
Ethiopia, 2011). The average share of gross domestic savings of Ethiopia during the year 2012/13
to 2016/17 was 21.3% of GDP. Consequently, gross domestic saving to GDP ratio rose to 24.1
percent from 22.4 percent in the previous year, slightly higher than 23.8 percent GTPII target for
the fiscal year (National Bank annual report, 2016/17).

Mekonen (2017) investigated determinants of saving behavior of rural households in Bale zone
specifically in sinana district. To achieve higher saving rate, both socioeconomic and
demographics determinants should be studied. The study identified some important variables
which determine formal financial saving behavior of rural households of the study area using
econometric analysis.

In this regard, understanding the nature of private saving behavior is critical in designing policies
to promote savings and investment. Without savings, societies will have few mechanisms to
smooth unexpected variations in their income. Since saving is one of the few means of
accumulating assets, the capacity to save becomes critical for increasing social mobility and
enhancing future income-earning possibilities. As such it is important to examine the determinants
of private saving behavior.

1.2. Statement of the Problem

The saving behavior in national economies exhibits inertia and persistence over time. Countries
with higher saving rate tend to remain in the same saving profile whereas those countries with low
saving rate find it difficult, if not impossible, to break the low saving rate and growth rate vicious
circle. (Loayza et.al.2000). Consumption habit formation and its resistance for change might have
an important role in the process. Saving transition, a situation in which a low saving country

3
transforms itself into high saving economy, this process needs considerable policy and incentive
factors to initiate. Moreover, the transition seems to depend in important ways on the growth
performance of an economy (Rodrik, 2000) suggesting the need to pursue policies that promote
simultaneously growth, investment and domestic saving.

In order to achieve higher rate of growth with relative price stability, the marginal propensity to
save should be raised by appropriate incentives and policies. Also, in an era of international
financial integration, for macroeconomic stability, higher domestic savings are essential (Degu,
2007). The private saving in Ethiopia has experienced a variety of changes over the past two
decades due to changes in lifestyles and consumption models (Commercial Bank of Ethiopia,
2011). Saving in Ethiopia especially in rural areas is mainly done out of the income from
agricultural activities and characterized as seasonal and irregular as the cash flow through sale of
agricultural product and availability of work is also seasonal (Dejene, 1993).

In Ethiopia, private saving does not have a deep-rooted history because of frequent policy changes
following the changes of government. For instance, the general trend of private saving as a
percentage of GDP was falling after the year 1972/73. Ethiopia’s private saving was lower in the
Derg regime than the imperial era since it was above 10 percent before 1974 as compared to below
4 percent for the years 1973/74-1990/91. Despite its recovery in 1989/90, it fells again consistently
and became negative for the year 1992/93. This may be due to the introduction of a new interest
rate structure which resulted in positive real interest rate (WB, 2013).

Private saving behavior is determined by different socio economic and political factors. Moreover,
these different factors have different effects on private saving either in the negative or positive
sense. The literature on determinants of private savings behavior is not extensive, few of the
previous studies have analyzed the impact of different macroeconomic and demographic variables
on private savings behavior, for instance; (Birhanu, 2015; Girma et al., 2014; Dufera et al., 2017;
Tsega and Yemane, 2014) tried to explore important factors of saving behaviors in Ethiopia using
different approaches. None of these studies dealt with the preferences of determinants of private
saving behaviors with reference to formal financial institution sector. Therefore the purpose of the
current study is to investigate the determinants of private savings behavior of the residents of Robe
town with special reference in mobilizing cash savings and make use of their savings through the

4
commercial banks of Ethiopia (CBE) by using income of the clients, family size, occupation,
financial knowledge of the client and different demographic factors

Therefore, in order to study the effects of private saving, one needs to identify first, the factors that
are affecting it. By doing so, the researcher could understand why and how changes in private
saving occurred and pose possible remedies to correct prevailing problems of private saving by
looking at the current situation of the determinants. Hence, the main objective of this study is to
assess the determinants of private saving behavior. Hence, this study would seek to fill this gap by
focusing on determinants of private savings with reference to commercial bank of Ethiopia (CBE).

1.3. Research Questions

The research questions for the study are:

 What are the challenges of private saving in CBE Robe town?

 How financial knowledge affects the private saving behavior of clients of CBE?

 What are the determinants of private saving behavior of residents in Robe town?

1.4. Objectives of the Study

1.4.1. General Objective of the Study
The overall objective of this study is to assess the determinants of private saving behaviors in Bale
Robe town clients of CBE Robe Branches.

1.4.2. Specific objectives

1. To identify the challenges of private saving in CBE.

2. To determine the relationship between financial knowledge and private saving behavior of
clients of CBE.

3. To analyze the main determinants of private savings behavior of the clients.

1.5. Significance of the Study

The significance of the study would identifying the private savings magnitude in the urban
community with available financial institutions (commercial banks of Ethiopia). The study results

5
are believed to be informative to the responsible organizations that deal with promotion and
regulation of private savings and financial institutions as well as other beneficiaries like NGOs’.

Furthermore, the result of this study would help policy makers in providing important information
about the factors related with private saving behavior and determinants of saving. Finally, the
result of this study will use other researchers to use as a base for further detailed study.

1.6. Scope and Limitation of the Study

This study covers the demographic, socio-economic, and institutional factors that influence the
behavior and magnitude of private saving with commercial banks of Ethiopia (CBE). In particular
five respective branches private customers of commercial banks of Ethiopia in Bale Robe town
were selected (Sofumer branch, Sinana branch, Woleshe branch, Goba Robe branch & Madda
Walabu branches.)

During the course of this study there were some issues affecting the research in generating
expected out comes or information. There is may be the unwillingness of the respondents in
answering questioners. Finally, the lack of adequate data on conducting research may affect the
analysis and result of the study. Despite all these problems the researcher had been exerted
maximum effort to have valid results.

1.7. Organization of the Study

The study is organized in five chapters. The first chapter deals with background of the study,
statements of the problem, objective of the study, the scope and limitation of the study, significance
of the study, limitation and organization of the research. Second chapter focuses on literature on
concepts appropriate to the study such as determinants of saving behavior and relevant literature
related to the study is reviewed in chapter two.

Chapter three focuses with the description of the study area, materials and methods of the study.
In chapter four, the results obtained from the descriptive statistics and econometric models were
tried to be presented and discussed. Finally, chapter five presents the conclusion and
recommendations and implication for future research.

6
CHAPER TWO

2. Literature Review
2.1. Theoretical Framework

Savings requires accumulation of anything of lasting value is also savings. The part of income not
consumed is the part that is saved. Thus savings equals income minus consumption (Henderson
and Poole, 1991). Samuelson and Samuelson (1980) noted that in the industrial society, savings is
generally done by different people and for different reasons. For instance, these scholars believed
that when farmers devote time to draining a field instead of planting and harvesting a crop, they
are saving and at the same time investing. They are saving because they are abstaining from doing
the things that would entail present consumption in order to provide for larger consumption in the
future – the amount of their savings being measured by the difference between their net real income
and their consumption. Thus savings is primarily done by all group of people; by individuals,
families, households, pension funds etc.

In Issahaku’s (2011) analysis of the determinants of saving and investment in Nadowli

district in the Upper West region, he regarded savings as income that is not consumed by
immediately buying goods and services. Using a microeconomic approach, he saw a close
relationship between savings and investment. Thus “by not using income to buy consumer goods
and service, it is most likely for a resource to be instead invested by being used to produce tangible
and intangible capital such as machinery, schooling, on-the-job training, among others. Saving
undeniably therefore is a strategic variable in the theory of economic growth hence its role as a
determinant of economic growth has been emphasized by classical economists like Adam Smith
and David Ricardo” (Ibid, 2011).

Dell’Amore (1977) in analyzing some of the factors which influence individuals saving in the
household, differentiated between instinctive and congenital savers. For instinctive savers, the
dominating influence to save is that of the person’s innate characteristics but these in turn are
always to some extent affected by the conditions of the social environment. For instance, in time
of rapid economic development, instinctive savers will save more. However, for people who are
deeply rooted in congenital factors, the volume of savings does not change even when the
possibilities of saving diminish especially in times of economic recession. The propensity to save

7
plays a part both in deliberate and in instinctive saving, but is strongly subject to change in the
former case, although even deliberate choices may not always be economically rational.

While savings consist of the part of the household income withheld from consumption, they are
not a residual quantitatively determined by the propensity to consume. Experience shows that
income recipients often plan in advance to set aside a certain sum within a predetermined period,
and that this leads them to forgo even some non-superfluous consumption; clearly, the propensity
to save then becomes the dominant factor in the choices which govern the allocation of disposable
income.

2.1.1. Determinants of Private savings

Theoretically, there are many factors that determine the saving performance of a country. The most
important factors as shown in many studies are those related to income, real interest rate, inflation
rate and government policies, demographic characteristics, fiscal policy, macroeconomic stability,
the extent of financial sector development, and external variables. The factors normally considered
as the determinants of saving include all the factors that affect the ability to save, the will to save
and the opportunity to save. The life-cycle hypothesis proposed by Modigliani (1986) provides a
theoretical framework of most determinants of saving behavior used in recent empirical studies.
The theoretical frameworks of these determinants are analyzed as follows:

2.1.2. Income

One of the basic determinants of savings which almost all the studies in the area of savings have
tried to study is income. Different studies using different methods have been conducted in
different parts of the world and all have found a positive relationship between income and
savings. Based on the findings, some scholars have propounded certain theories.

The Keynesian Savings function and the Friedman Permanent Income postulate a positive
relationship between savings and income. Friedman Permanent Income hypothesis distinguishes
between permanent and transitory components of income in which case households tend to
consume the permanent income while the transitory income is channeled into savings with a
marginal propensity to save from this income approaching unity (Quartey and Blankson, 2008).
Studies conducted by other scholars have also found similar results. For instance, Collins (1989)

8
examined the saving behavior in nine Asian developing countries plus Turkey since the early
1960s. Using a times-series data, the results show trends and differences in saving across countries
and within countries over time. However, in the midst of all the differences in savings rate and
savings behavior, the results from all the countries confirmed that increase in income have a
positive effect on household savings.

Evidence from Sub-Saharan Africa and other developing countries, albeit mostly from middle- to
upper-income households, suggests that income positively influences saving and in ways
consistent with Keynesian Savings function and the Friedman Permanent Income. In Kenya,
household income was found to be a statistically significant predictor of savings among rural
farmers, entrepreneurs, and teachers (Kibet et al., 2009). A similar result was found in Uganda
where higher permanent and transitory incomes significantly increased the level of net deposits
among households that reported owning bank deposit accounts (Kiiza and Pederson, 2001).

The findings in Uganda do not differ from what Athukorala and Sen (2004) also found in India
even though both used different approaches. They found a positive relationship between income
and savings in India just as Abdelkhalek et al (2009) found in their microeconomic analysis of
household savings in Morocco. In the far region of Pakistan, the analysis of the savings behavior
of different groups by Ur Rehman et al (2011) also found similar results and in the Philippines,
Bersales and Mapa (2006) also found a positive relationship between income and savings. These
findings suggest that households save a larger share of their income when that income is higher
and this has been proven to be positive in all the regions across the world.

Athukorala and Sen (2004) noted in their analysis of the determinants of private savings in the
process of economic development in India from 1954 – 1998 that real interest rate return on bank
deposit had a statistically significant positive effect on Indian’s savings behavior. The income
growth variable was found to be an important determinant of the private savings rate. The
Keynesian ‘absolute income hypothesis’ was found to hold for savings behavior in India.
Similarly, the empirical estimations from Dirschmid and Glatzer (2004) analysis of the
determinants of household savings rate in Australia using an error correction model showed that
the savings rate was positively influenced by income growth in both the short and long run.

9
In the same way, Samuelson and Samuelson (1980) in their work stated that rich people save
more than poor people not only in absolute but also in percentage amounts. The very poor
are unable to save at all. Instead they ‘dis-save’, that is spend more every year than they earn, with
the difference being covered by debt financing. Thus income is a prime determinant of savings.

Thus, all the studies above, there is a positive relationship between income and savings and even
though these scholars used different strategies and methods, their findings were similar.

2.1.3. The Real Interest Rate, Inflation Rate and Government Policies

In a static approach, increasing taxation, if direct, reduces available income to household and if
indirect, lowers the purchasing power of existing personal incomes. One way or the other, savings
potential and propensity are negatively affected, since the consumption propensity is generally
highly rigid with respect to income and African countries average personal income is growing very
slowly and in some cases is nearly stable. In this case a faster increase in taxation would not only
prevent household savings but it might also cause negative personal savings if some income-
earners were induced to disinvest accumulated wealth in order to counterbalance the reduction in
income (actual or in purchasing power) allocated to current consumption expenditure (Mottura,
1972).

Mottura (1972) believes that the sum to be gained by interest rate, even if it is high, normally has
little economic significance to savers, who deposit or invest amounts in a small average volume.
Therefore the saving behavior is not merely motivated by the interest rate and savers do not seem
to be particularly interest-sensitive. Rather the formulation and accumulation of savings at the
household level appears to be strongly motivated by the following factors: the need for insurance,
the need for credit, the feeling of social obligation, and the planning of future expenditure
(consumption and investment). Again, this is indirectly proved by the performance of indigenous
associations (both the savings and mutual-aid kind) and by the behavior of adherents. In
such an environment, it becomes understandable that the interest rate cannot provide a sufficient
motivation to save or to deposit savings into a bank. In fact, by saving with an indigenous
association (or even a credit union) the household obtains security, credit and social standing inside
the local community.

10
It is important to note that, according to the logic of indigenous associations, personal savings tend
to assume an obligatory character after the individual has joined the association, and that savings
become, in a sense, a form of participation. Therefore the formulation of an ideal incentive program
for household savings should start from such basic considerations and should seek to make full
use of existing savings motivations in view of developing the savings potential of the household
sector.

Borsch-Supan (1992) found that in Germany savings reduce among households below retirement
age. Among the elderly however, the tighter safety net might actually increase net savings since
the generous retirement income might not only prevent the German elderly from depleting their
assets but even provide income levels sufficiently large to induce savings in old age (Borsch-
Supan 1992).

2.1.4. Demographic Characteristics

2.1.4.1 Gender

Quartey and Blankson (2008) in the analysis of the Ghana Living Standards Survey (GLSS) data
observed the following. First the number of people who did not have savings account were more
than those who had. Only 12.1% of the total sample held savings account and out of this
proportion, females held more savings account than males (53.5% against 46.5%). It was
observed that comparing this figure to that of 1991/2, the proportion of males with savings account
declined. It was also noted that of the total people who held savings accounts, majority of them
were sons and daughters of household head followed by household heads themselves and then the
spouses of household heads and the least was the grandchildren of household heads.

Denizer et al. (2000) in the analysis of the household savings in the Transition using data from
Bulgaria, Hungary, and Poland noted that households headed by women exhibit significantly
higher savings rates than that of men in these three countries. Dupas and Robinson (2013) worked
in collaboration with the Bumala village bank in Kenya to randomly provide small business owners
with access to savings accounts. Four to six months after account opening; women in the treatment
group had 45 percent higher daily investment in their businesses than women in the comparison
group. Thus women have the capacity to save but were faced with a number of barriers.

11
Embrey and Fox (1997) noted that combination of lower earnings, lower savings, longer life spans,
and higher risk aversion pose greater challenge for financial educators and policy makers. Schmidt
and Sevak (2006) also reasoned along this path by observing that the lower earnings and savings
of women in the US had made them financially dependent on men for financial security. For these
reasons in 2003, 28.0% of single female-headed households were living in poverty, as compared
with 13.5% of single male-headed households.

Researchers have suggested several possible reasons for a gender gap in wealth. Some observe
that women typically have lower lifetime earnings than men, creating lower total wealth. Also
women have historically completed fewer years of education than men, which also affects earnings
(U.S. Bureau of the Census, 2007). Women and men also differ in their attachment to the labor
force, which could lead to the observed differences in financial behaviors between men and women
(Sierminska, Frick, and Grabka, 2008). Any difference in wealth may partly result from lower
female labor force participation (Warren, Rowlingson, and Whyley, 2001), where women tend
to have part-time work arrangements, more diversified work histories due to child bearing and
child rearing, and more frequent job changes.

The findings by Fisher (2010) also showed that women were less likely than men to have saved
over the previous year, while the proportion of the male and female samples reporting to save
regularly was similar. Women and men have been shown repeatedly in the literature to differ in
terms of risk tolerance, which has then been shown to affect women’s financial decisions and
behaviors. The results show that risk tolerance also affects men and women in terms of whether
they engage in saving. Interestingly, women reporting low risk tolerance were significantly less
likely to save over the short term as well as to be regular savers, while this effect does not apply
to the sample of men.

On the other hand, some researchers have concluded that no gender difference in savings and
investment behavior exists. For example, Zhong and Xiao (1995) found no gender difference in
the dollar holdings of stocks. DeVaney and Su (1997) concluded that the determinants of
retirement planning knowledge were similar for men and women, and Masters and Meier (1988)
found no difference in the risk taking propensity of male and female entrepreneurs.

12
2.1.4.2 Age
It was also observed that household members who are less than 18 years held greater proportion
of the savings account. Even though the members below held a large proportion of savings account,
those aged 60 years and above had the highest mean savings balance followed by those who are
less than 18 years. This result contradicts the Life Cycle Hypothesis (LCH) which predicts that
working population accumulate savings whiles the young and the old consume past savings
(Quartey and Blankson, 2008).

Similarly, Chakrabarty et al (2008) in their analysis of the saving performance of Australia found
results consistent to that of Quartey and Blankson (2008). The coefficients on age dummies suggest
that households save more as heads become older. For example, the saving rates for households
with heads aged 41–50, 51–60, and aged 61 or above were higher than those with heads aged 30
or below. One may argue that households with retired heads have different saving habits than those
with non-retired ones but their findings showed that whether the head of the household is retired
or not does not appear to affect savings. This evidence runs contrary to the lifecycle theory of
consumption. Lifecycle theory predicts that households should start dissaving as they age.

Chakrabarty et al (2008) also believed that savings of the households with heads over the age of
61 could be higher due to generous tax benefits of superannuation contributions. Another possible
explanation behind this behavior could be the increase in average life expectancy in Australia.
Attanasio (1998) in his examination of the relationship between age cohort and personal savings
in the United States using data from the Consumer Expenditure Surveys (CEX) from 1980 to 1991
found that age-savings profile is humped-shaped with the peak of savings occurring around age 57
(Fifty Seven).

Kelly and Williamson (1968) regressed per capita household saving against per capita household
income for five household age groups in Indonesia. They found that the age of the head of the
household is an important determinant of household savings in rural households and that the
average and marginal saving rates rose with the share of agricultural income. However, Shultz
(2005) who analyzed the demographic determinants of savings in Asia found no significant
relationship between savings and age composition.

13
The study of saving behavior of populations undergoing demographic transition, rather than
steady-state growth, emerged from the work of Modigliani and Brumberg (1954) who considered
different cohorts of population in analyzing the consumption and saving behaviors at different
stages of life. In their view, households save during their working period and dis-save during their
retirement period of life to support consumption at the habitual standard during retirement and this
has popularly been referred to as the life cycle hypothesis (LCH) of consumption and saving.
Hassan et al. (2011) noted that this theory does not relate population dynamics to the growth of an
economy directly but by relating population age structure to saving it links population dynamics
indirectly with a number of macroeconomic aspects, including international capital flows and the
real exchange rate.

Dell’Amore (1977) believe that individual innate factors are always in various measures
influenced by education, in so far as it enlarges the technical and social knowledge which directly
or indirectly governs all human actions. Education increases people’s awareness of the risks of
economic activity, and at the same time imparts to them knowledge and skills by which to avert or
mitigate those risks. Individual innate factors, tempered in varying degree by education are not
normally the sole determinant of the propensity to save, because other influences are at work within
the family. Chakrabarty et al (2008) emphasized that when education is relatively stable across an
individual’s lifetime it tends to have a positive correlation with the permanent income.

Elbadawi and Mwega (2000) analyzed the determinants of private savings in sub- Saharan Africa.
In addition they narrowed down to the savings experiences of Kenya, Zimbabwe and Botswana.
Collective results of sub-Saharan Africa revealed that per capita Gross Private Disposable Income
(GPDI) influenced private savings positively. Youth dependency ratio (the ratio of the population
under 15 years to the population of those over 15 years) and urbanization (the proportion of the
urban population to the total population) had negative and insignificant influence on savings.

2.1.4.3 Education
It was also observed that in 1991/2, higher levels of education (tertiary) significantly increased the
probability of savings but this couldn’t hold for 1998/9. Thus ‘the probability of savings increases
as one attains tertiary education but the marginal effect was not significant’. Schooling may enable
people to appreciate the finer things in life or to be more efficient in making consumption decisions
(Solmon, 1975).

14
Generally it has been argued that one purpose of education is to instil an analytical ability in
students. “Returns to saving will be high when the saver can estimate and analyze the effects of
current and future prices of goods, current and expected returns to various financial assets, the
investment alternatives available, and current and future conditions of other aspects of the
economy. It is possible that people with the same income can purchase equally good investment
data and advice. However, it would seem that an educated person can do whatever the less
analytical person can do and more” (Solmon, 1975).

Fisher (1965) has provided a list of personal characteristics that would seemingly influence time
preferences and hence savings: foresight, self-control, a habit of thrift, concern over the uncertainty
of life, concern for heirs, and concern for fashion and fads. The argument has generally been that
these characteristics are influenced by education. Watts (1958) has pointed out that "high education
may imply lower consumption, quite apart from the income correlation, if better educated people
are more farsighted and therefore have stronger retirement motives.

2.1.4.4 Family Size

It has been argued that the higher the family size, the higher the consumption pattern and all things
being equal, the lower the excess money left for consumption. Elfindri (1990) conducted a study
to examine the demographic impact of family size on household savings in some part of central
Sumatra in Indonesia. Using data from the 1987 Indonesian census, the results from the regression
analysis show that the size of the household and the number of children at school going age
negatively affect household savings. In contrast to the findings of Elfindri, Browning and Lusardi
(1996) who analyzed micro theories and data on household savings found that household size can
have a positive effect on savings according to economies of scale. However, the composition of
the family, rather than the size of the family per se, has a greater impact on savings. A young
family member does not have the same effect on household savings as an elderly family member
or an adult.

The difference in the findings of Elfindri (1990) and Browning and Lusardi (1996) stems from the
fact that Elfindri looked at household size in general whiles Browning and Lusardi extended their
study to include composition. Thus, by composition, a household with many of its members
working while have a positive effect on savings whiles a household with many of its members

15
being dependents will have a negative effect on savings. But taking the household size as a whole,
there is likely to be a negative relationship with savings.

2.1.4.5 Locality

Curley and Grinstein-Weiss (2003) in their comparative analysis of rural and urban saving
performance in of Individual Development Accounts noted a variation between monthly net
deposits between residents in these localities. Those in the urban areas had higher savings than
those in the rural areas even though when other factors were controlled for, the difference was not
statistically significant. Certain explanation were offered for this variations. First and foremost, a
positive correlation was found to exist between average savings and financial education. Those
who get access to financial education save more than those who do not and the urban areas are
more privileged in this area than rural areas.

2.1.4.6 Occupation
The amount of income one makes mostly depend on his or her occupation and as such, it has
postulated that people whose occupation earn them higher incomes are able to have higher savings
than those who are into menial jobs. In Ghana, Quartey and Blankson (2008) examined that
majority of the households who save were engaged in agriculture but their mean savings were low.
However those engaged in finance, insurance, real estate and business services had the highest
mean current value of savings. Unlike Ghana, the findings from Dupas and Robinson (2013) work
show that in Kenya, potential savers were market vendors, bicycle taxi drivers and self-employed
artisans who did not have a savings account but were interested in opening one. The findings from
both studies show that those within the medium to lower income group tend to have more savings
account but those within the higher income group held the highest mean savings. This stands to
support the assertion that the poor have the desire to save (Issahaku, 2011).

2.1.5. Financial Development

The degree of financial sector development and the range and availability of financial assets to suit
savers represents another important factor in promoting savings. The expansion of bank branches
and improving the accessibility to banking facilities will result in reducing the cost of banking
transactions, and thus motivate individuals' savings. If financial institutions are not well organized
and stable, savings will be kept in non-monetary terms such as real estate.

16
Access to financial institutions have been argued to influence savings. Savings among the
“banked” people tend to be higher than the “unbanked” demonstrating that existing relationships
with financial institutions may encourage higher saving amounts. The Federal Reserve Board’s
1995 Survey of Consumer Finances further explained that many low-income individuals have little
or no experiences with financial institutions. Several reasons have cited for being “unbanked”
including charges imposed by financial institutions, difficulties of establishing credit,
inconvenience due to location, lack of trust in institutions and lack of information regarding
options available (Woodstock Institute, 2000).

Kiiza and Pederson (2001) found that in Uganda, proximity of the financial institution to the
household was associated with the probability of whether or not a household will open a formal
saving account, as well as the level of net deposits among households owning a bank account. In
the same study, urban households were more likely to open a deposit account than their rural
counterparts. Higher transaction costs (due to reduced accessibility) were also found to have
significant negative effects on the level of savings deposits among Ugandan (Kiiza and Pederson,
2001) and rural Kenyan households (Dupas and Robinson, 2009).

2.1.6. Expectation of Future Changes in Income

Individuals across all the planet are periodically faced with the challenge of uncertainty. Whiles
the rich are faced with the uncertainty of future changes in income due to some changes in
both microeconomic and macroeconomic policies, the poor are also faced with uncertainty in
meeting present and future expenditures. Thus, both the rich and the poor households are
commonly faced with the problem of uncertainty. Lusardi (1998) in her analysis of the importance
of precautionary saving noted that individuals facing higher income risk save more. In a similar
vein, Guariglia (2001) also found a significant relationship between earnings uncertainty and
saving. The results implied that households save more if they expect their financial situation
to deteriorate. BroWn and Taylor (2006) have noted that even though financial expectation
influence savings, they are also influenced by individual characteristics (such as age and education)
as well as by business-cycle effects.

17
2.1.7. Relationship between Financial Literacy and Saving Behavior
Absence of financial literacy can be said to hinder the capability of persons to make well-informed
financial decisions. Due to this, positive relationships that exist between financial knowledge and
financial behavior have been acknowledged by Hilgert et al., (2003).

A study by Hilgert et al., (2003) provide some connection between financial knowledge and
financial behaviors. Their research indicates that persons with higher level of financial knowledge
are likely to involve themselves in financial products and services, cash flows management, saving
and investment. Not only does financial literacy predicts savings at individual levels, it also
predicts savings at cross-country level.

Jappelli and Padula (2011) examine reports from 39 nations and find that financial literacy is a
factor that determine the level of national savings. Analyzing individuals‟ behaviors‟ in developed
countries reveal that financial literacy has critical implications for retirement arrangement and
saving decisions. It is revealed by Lusardi and Mitchell (2006) that financial illiterate in developed
countries are less likely to save for retirement. This argument is been supported by Lusardi and
Mitchell (2009) and Banks et al. (2009) who observed that the more financially individuals are
more likely to be ready to retire and have higher retirement income.

A study on developing nations by Klapper and Panos (2011) examine the impact of financial
literacy on the retirement saving in Russia. They discovery that higher financial literacy is
positively related to retirement planning.

Numerous works also reveal low financial literacy translates into lack of retirement planning
(Alessie et al. (2008); Lusardi and Mitchell (2009)). Hastings and Mitchell (2011) explain through
their studies that there is strong correlation between investment in low cost fund and financial
literacy. To them, individuals with high literacy level consider more about the fund expenses and
more likely to choose low cost funds.

2.2. Other Determinants of Private Saving

2.2.1. External savings

From the literature, it is viewed that when a country rely much on external capital inflow to fund
its short and long term development projects, then the rate of domestic savings will go down. That

18
is the case, because the government will not put much effort to mobilize domestic savings due to
external finances. Therefore, a negative relationship between domestic savings and external
savings is observed.

2.2.2 Public savings

According to Mwega and Elbadawi (1998), public savings may or may not affect private savings
depending on the assumption made, this may have some impact (Keynesian) or is fully crowded-
out (Ricardo equivalence). With idle resources in the Keynesian model, budget deficit would have
a positive but less than a coefficient of one that may lead to an increase in output.

They further stressed that, with borrowing constraints, government dissaving is directly offset by
private savings since individuals will save more as they fear that the government dissaving will
result to future increase in taxes.

2.3. Theories of Saving

Many disciplines and scholars have tried to explain savings behavior from different perspective
and thoughts. For instance whiles economists explain savings from income and age perspective
(Modigliani and Ando, 1957), sociologist see class and social stratification as the primary
influence of savings (Sorensen, 2000). Also social workers have outlined access, incentives,
expectation, and facilitation as the factors that influence savings (Beverly and Sherraden, 1999).
Behavioral economists and economic psychologists on the other hand see self-control, motives
and other individual characteristics as the factors that influence savings (Katona, 1975). This
section tried to explain some of these theories as they form the basis underlying the study.

2.3.1 Life Cycle Theory

One of the most important economic theories regarding saving is the life cycle hypothesis proposed
by Modigliani and Brumberg (1954). The essential idea of the life-cycle hypothesis is that
individuals (or households) try to keep their expenditures constant over the life-cycle. At times in
life when income is lower than expected average life-cycle earnings, money would be borrowed;
when income is higher than expected, the surplus would be saved. By doing this, consumption is
smoothed at a certain (own standard of living) level. According to the life cycle hypothesis, old

19
people should spend more than they do and young people should borrow (Ottoo, 2009). Saving
behavior is most often described as a function of income and consumption.

Wagner et al. (2005) explained that even though “the life cycle hypothesis (LCH) assumes that
consumption and savings patterns represent an individual’s age or stage within the life cycle, with
a majority of saving occurring in the middle years but recent LCH models suggest significant
heterogeneity within and across age cohorts”. To them low-income households do not exhibit
savings behavior predicted in original LCH models.

According to the theory of life cycle (Ando and Modigliani, 1963), the financial behavior differs
for the youth and the elderly, as compared to the mature. A still important part of the young people
who did not reach employment age yet diminish the savings rate, since their parents allot a big part
of their incomes to supporting their children. In the same direction, the increase in the average life
span imposes the increase of the saving rate during the active life with the view to maintaining the
level of consumption (living standard) during the active life. Thus, the increase in the weight of
the elderly in a population is equivalent to diminishing the population savings, since this segment
is dissaving or is saving at a very reduced pace. The purpose of the elderly segment is very
important from the point of view of its financial behavior, this being a category that dis
saves, thus consumes from the savings accumulated during the active life (Artus, 2002).

From the Psychological point of view in their behavioral life-cycle hypothesis, Thaler and
Shefrin (1981) consider psychological factors such as mental accounting and self-control.
According to this model, people do not treat all of their wealth in the same way, but spend
differently depending on whether the money is seen as current income, current assets or future
assets. Regarding self-control, Thaler and Shefrin (1981) claim that people often adopt rules that
restrict opportunities to spend. These rules can be imposed from the outside, or self-imposed.

2.3.2 Friedman theory of permanent income

Friedman’s (1957) permanent income hypothesis is an extension of the life cycle hypothesis. It is
also based on the perception of one’s present and future income. When income is higher than the
permanent income somebody considers to be his or her comfortable (and realistic) level of income,
money is saved for a period in life where income might be below this personal permanent income

20
level. According to Friedman, people also save because of a bequest motive, the motivation for
saving to leave an inheritance (Ottoo, 2009).

According to Schenk (1988) the central idea of the permanent-income hypothesis, proposed by
Milton Friedman in 1957, is simple: “people base consumption on what they consider to be their
‘normal’ income. In doing this, they attempt to maintain a fairly constant standard of living even
though their incomes may vary considerably from month to month or from year to year. As a result,
increases and decreases in income that people see as temporary have little effect on their
consumption spending”. Thus, consumption depends on what people expect to earn over a
considerable period of time. As in the life-cycle hypothesis, people smooth out fluctuations in
income so that they save during periods of unusually high income and dis save during periods of
unusually low income.

Schenk (1988) believes that both the permanent-income and life-cycle hypotheses loosen the
relationship between consumption and income so that an exogenous change in investment
may not have a constant multiplier effect. This is more clearly seen in the permanent-income
hypothesis, which suggests that people will try to decide whether or not a change of income is
temporary. If they decide that it is, it has a small effect on their spending. Only when they become
convinced that it is permanent will consumption change by a sizable amount.

In analyzing the differences between the two theories, Schenk (1988) noted that the life-cycle
hypothesis introduced assets into the consumption function, and thereby give a role to the stock
market. A rise in stock prices increases wealth and thus should increase consumption while a fall
should reduce consumption. Hence, financial markets matter for consumption as well as for
investment. The permanent-income hypothesis on the other hand introduces lags into the
consumption function. An increase in income should not immediately increase consumption
spending by very much, but with time it should have a greater and greater effect. Behavior
that introduces a lag into the relationship between income and consumption will generate the sort
of momentum that business-cycle theories saw. A change in spending changes income, but people
only slowly adjust to it. As they do, their extra spending changes income further. An initial increase
in spending tends to have effects that take a long time to completely unfold.

21
The existence of lags also makes government attempts to control the economy more difficult. A
change of policy does not have its full effect immediately, but only gradually. By the time it has
its full effect, the problem that it was designed to attack may have disappeared. Finally, though the
life-cycle and permanent-income hypotheses have greatly increased our understanding of
consumption behavior even though data from the economy does not always fit theory as well as it
should, which means they do not provide a complete explanation for consumption behavior
(Schenk, 1988).

2.4. The Development of Bank in Ethiopia

A bank is a financial institution that provides banking and other financial services to their
customers (Kapila, 2001). A bank is generally understood as an institution which provides
fundamental banking services such as accepting deposits and providing loans. There are also non-
banking institutions that provide certain banking services without meeting the legal definition of a
bank. Banks are a subset of the financial services industry. A banking system also referred as a
system provided by the bank which offers cash management services for customers, reporting
the transactions of their accounts and portfolios, throughout the day.

The history of banking in Ethiopia goes back to the year 1905 E.C. when the bank of Abyssinia
was first established with a capital of $500,000.00. It was the foundation of this bank that marked
the beginning of modern banking in Ethiopia. The government of Ethiopia and the national bank
of Egypt jointly owned it under a 50 years franchise agreement. The liquidation of Abyssinia bank
in the year 1931 due to inefficiency and poor profit orientation was followed by the
establishment of Bank of Ethiopia with a capital of $750,000.00 the first indigenous bank in
the country.

The new economic policy introduce in November 1991 G.C. by the transitional government of
Ethiopia laid the blue print for the transition from centrally planned economic system to
market economic system in which the critical role of the private sector in development is fully
recognized. In the banking industry, the policy was translated in to action through the issuance
of the licensing and supervision of banking business proclamation No 84/94, which allowed
the Ethiopian private sector to establish privately owned banks.

22
2.5. The Role of Banks in Financial Systems

Financial sector is broad which consists of the banking sector and other financial institution (such
as insurance corporations and pension funds, brokers, public exchange and securities markets
etc), however in the context of African continent the banking industry carries the greater share of
the financial system (Sheku, 2005).

Most of the business relies on banking sector as a source of financing (Medhat, 2004). Banks have
historically been viewed as playing role in financial markets for two reasons. One is that
they perform a critical role in facilitating payments. Commercial banks, as well as other
intermediaries, provide services in screening and monitoring borrowers; and by developing
expertise as well as diversifying across many borrowers, banks reduce the costs of supplying credit
(Katherine, 2004). Thus in their role as lenders, banks are often not merely buying someone’s debt,
rather they are providing significant financial services associated with extending credit to their
customers and to the extent that investors want to hold banks liabilities, banks can fund
borrowers directly. The main providers of additional financing are domestic commercial banks
(Herald and Heiko, 2009).

2.6. Empirical Review Determinants of Saving

2.6.1. Theory
Economic theory states that savings represents the difference between income and consumption.
Income includes earning from all activities during a year and is net of cost incurred in producing
that income (imputed costs, however, constitute income of the farm family). In a two sector
economy consisting of households and business sector, income is either spent or saved. When
this occurs, one can explain the behavior of savings if one knows about consumption.

Consumption is the total amount of goods and services consumed by the rural household during
a year and include expenditures on food, clothing, housing, heat, lighting, travel, education, health
care, social ceremonies, and recreations, litigation and charity, etc. Savings may be made in kind,
such as jewelry, land, livestock or some other commodities, or may be in the form of currency
notes deposited in financial institutions and savings are fundamental to sustainable economic
development.

23
The theoretical literature groups households savings motives into four such as to provide
resources for retirement and bequests; to finance large lifetime expenditure; to finance
unexpected losses of income; and to smooth the availability of financial resources over time to
maintain a more stable consumption profile.

Household savings literature is based on two major hypotheses; Griffiths and Stuart, (1986).
Following the pioneering work of Keynes which defines savings as a linear function of income,
the first major breakthrough in savings literature is the permanent income hypothesis of
Friedman. This hypothesis differentiates permanent income and transitory income as
determinants of savings. Permanent income is defined in terms of the longtime income
expectation over a planning period and a steady rate of consumption maintained over lifetime
given the present value of wealth. Transitory income is the difference between actual and
permanent income and since individuals are assumed not to consume out of this income category,
marginal propensity to save on transitory income will be unity.

The second major contribution to savings literature comes from Ando and Modigliani’s stated by
Degu (2007), lifecycle hypothesis, whose basic assumption is that individuals spread their
lifetime consumption evenly over their lives by accumulating savings during earning years and
maintaining consumption levels during retirement.

The life cycle theory suggests that age has an impact on savings. The young and the retired people
are not saver. Therefore the higher the dependency ratio of a nation, the lower will be the saving
rate thus implying what is called the level of effect of the life-cycle theory. Macroeconomic
and political stability affect expectation and thus, also the saving rate. The services provided by
government, such as social security, the availability and the quality of financial services can affect
saving rate.

2.6.2. Empirical Studies

There are a number of empirical studies that have been done in developed and developing countries
trying to point out the key variables that should be considered when studying the private saving
behavior. Time series or pooled/cross sectional data have been vastly applied by many scholars to
arrive at their conclusion. Following below are some of the reviewed studies on private savings
behavior.

24
Evidence suggested by (Wolday 2014), which indicates that households with larger family size
(more children and elderly members) are likely to increase their consumption and remain with
little cash to save. On the other hand, if the dependents are economically active, there is a
probability of contributing to the increase in cash saving of household heads and offers incentives
for better risk protection within the household.

Thanoon and Baharumshah (2007), support the former researchers as their study on the
determinants of private saving rate in Malaysia concluded that interest rate specifically have little
or no influence on saving rate in Malaysia.

Furthermore, Odhiambo (2008) focused on interest rate reforms, financial deepening and savings
in Tanzania. The aim of the paper was to uncover the relationship that exists between the three
variables of interest. He deployed savings model and financial deepening model to arrive at the
conclusion that real interest rate does not affect the rate of savings in Tanzania.

On the same note, Ndanshau (2012) and Lipumba et al (1990) in their studies came to the same
conclusion that there is no strong evidence on real interest rate to influence national savings in
Tanzania. However, the interesting thing is that the interest rate reform has had a positive impact
on financial deepening which ultimately affects saving rate. However, the debate on the effect of
real deposit rate on savings has gained a different view from the one discussed earlier. Some
scholars have portrayed the positive relationship between real deposit rate and savings. Below are
some of those writers.

In Kenya, household income was found to be a statistically significant predictor of savings among
rural farmers, entrepreneurs, and teachers (Kibet et al., 2009). In Uganda, higher permanent and
transitory incomes significantly increased the level of net deposits among households that reported
owning bank deposit accounts (Kiiza & Pederson, 2001). Income was also a significant predictor
of improved savings in India (Agrawal, Sahoo, & Dash, 2007; Athukorala & Sen, 2004), and the
Philippines (Bersales & Mapa, 2006). A study conducted in Malawi, by (Alexander R., 2010)
concluded that household income levels significantly determine the ability to open a bank account
or to save. These findings suggest that households save a larger share of their income when that
income is higher.

25
To add on that, Loayza and Shankar (2000) did a study on private saving behavior in India and
found that it is possible for interest rate to affect positively the saving behavior once inflation is
considered. In Nigeria, Nwanchuku and Odigie (2011) shed light on the same as their study found
that private savings fluctuates in relation to interest rate on deposit. Growth rate of real per capita
and degree of financial depth impact positively on private savings while fiscal balance negatively
influences private savings in Nigeria.

Household work statuses have been found to affect their saving performances. According to
findings of the study conducted by (Wolday and Tekie 2014), occupation of a household such as
farming, non-farming activities, wage employment, self-- employment, causal employment and
etc influence the saving behavior of households. They state that in both rural and urban areas,
households with significant income from non-farm or self-employment are expected to have
relatively higher cash saving. Occupation, which can be predicted by a person’s level of education,
was found to be a significant predictor of savings rates in rural Kenya (Kibet et al., 2009).

All households need a safe place to put their money. Therefore, it seems probable that security
shapes saving and investment action, specifically that people are more likely to deposit, less
likely to withdraw, and more likely to have a diverse portfolio when they can participate in a
variety of secure saving policies, programs, and products. According to (Beverly et al, 2008),
security is considered at two levels: micro and macro. Micro security refers to protection from
risks of lost assets for a particular household and in the shorter-term. Macro security refers to
protection from risks for the political economy as a whole and in the longer-term.

Ogaki et al. (1996) got a positive relationship between saving and income in his study of saving
behavior in low and middle income developing countries. However, Morss (1969) pointed out that,
an upward change in income does not necessarily lead to the same change in savings especially to
developing countries. That is the case because an upward change of income of the poor will result
to change in their consumption pattern leading to less effect on savings rate. However, an upward
change of income to rich people could lead to the same upward change in their saving rates.

Other variables that emerged as the key positive determinants of private savings from the empirical
review include: GNP, income growth, size of working class and share of agriculture in GDP. This
has been witnessed from a number of previous studies including the works of Nwanchuku and

26
Odigie (2011), Loayza and Shankar (2000), Ndanshau (1998), Yasin (2008) and Uremadu (2009),
among others. These studies have arrived at these conclusions by basically focusing on time series
as well as cross sectional data.

However, they differ in methodology and time periods covered. All in all, dependency ratio, tax
and domestic inflation impact negatively the saving behavior of economic agents as revealed by
Uremadu (2009), Nwanchuku and Odigie (2011), Loayza and Shankar (2000), Thanoon and
Baharumshah (2007) and Leff (1969), among others.

Tiriongo Samuel. K (2005) for Kenya during the period 1980 to 2003 and Modest Tesha .M (2013)
for Tanzania using data for the period 1980 – 2012 and employed Engle – Granger residual based
test and found that real GDP per capita and external savings (the current account deficit) are the
main determinants of private saving and recommended the improvement in economic base as well
as export promotion as a measure of reducing the current account deficit. Financial deepening, real
deposit rate and the old age dependency ratio are also additional variables that determine private
saving in Kenya.

Haile Ademe (2013) also investigated the determinants of domestic saving in Ethiopia for the
period 1970/71-2010/11 using an Auto Regressive Distributed Lag (ARDL) bounds testing
approach. Income, budget deficit and inflation rate were found the short run and long run
determinants of domestic saving in Ethiopia. The study underlined the importance of raising the
level of income in a sustainable manner, minimizing the adverse impacts of budget deficit and
inflation rate and creating competitive environment in the financial sector.

One can conclude from the literatures that the determinants of private saving are diverse both in
developed and developing countries. Most empirical studies emphasized the significant and
negative influence of government savings on the saving rates, confirming the claim that
government savings tend to crowd out private savings. Moreover, positive association between
GDP and GDP per capita and private savings indicates that these variables represent the most
important determinants of private savings. Interest rate, inflation rate and current account deficit
appear to have an ambiguous impact on saving levels. Moreover, demographic factors such as
dependency ratio and urbanization rate seem to have a negative effect on private saving rates;
however, the significance of these variables was mixed between studies.

27
2.7. Conceptual Frame Work

From the above empirical and theoretical literature reviews there is many factors that determine
the private saving behavior. This study will use the demographic and other factors which determine
the private saving behavior that includes the age of the customer, sex, family size, and education
level, marital status of the client, financial knowledge, and occupation of the sample customer as
well as the monthly income of the customer. This study will quantified how this variables are
determining the dependent variable (the amount of income of the client saved in CBE).

Education level Sex of client

Age of client

Marital status Saving Family size

behavior

Occupation
Financial
knowledge Monthly income

Fig.2.1: the conceptual frame work of the study.

28
 3. CHAPTER THREE
3.1. DESCRIPTION OF THE STUDY AREA
This study was conducted in Robe town of Bale zone which is located in the south eastern part of
Ethiopia, 430 km from Addis Ababa (capital city of the country). Bale zone is characterized by
rural dominancy and agricultural activity. The topography of Bale Robe town includes moderate,
middle steep and plateaus. The altitude extends from 1700 to 3100 m above sea level. The
estimated land area of the town is 163,854 hectare and it is known for its high production potential
for crops such as wheat, barley, beans, emmer wheat, field pea and livestock such as cattle, sheep,
goats, horses and donkeys. Crop and livestock productions are the dominant source of income for
the communities of this surrounding town.

3.2. Research design

This chapter outlines the methodologies that employed in the study. It describes the target
population, sampling techniques, sampling unit, data collection tools, data analysis and ethical
consideration along with an appropriate justification.

Therefore the researcher had employed methodology and techniques using an econometric model
and Descriptive Quantitative Analysis in order to address the research questions. The explanatory
research design also refers to as analytical research design aims at identifying the causal links
between the factors or variables. Multiple regression using OLS (Ordinary Least Square)
estimates of the dependent (saving behavior) and independent demographic and other variables
which determine the private saving behavior that includes the age of the customer, sex, family size,
education level, marital status, financial knowledge of the client, occupation of the sample
customer as well as the monthly income of the customer were employed.

3.3. Research Approach

The researcher were used quantitative approaches of doing the study. Quantitative research is a
means for testing objective theories by examining the relationship among variables. If the problem
is identifying factors that influence an outcome, the utility of intervention or understanding the
best predictors of outcomes then a (deductive) quantitative approach is best; it is also the best
approach to test a theory or explanation Creswell (2009). Hence, based on the above discussion

29
and by considering the research problem and objective, in this study, the quantitative method was
used.

3.4. Sources of Data

Both primary and secondary sources of data was used to collect information of the sample
population. The type of data employed in the study was cross-sectional data. The primary data was
collected from the sample clients who are the depositors of commercial banks of Ethiopia (CBE)
Bale Robe town branches by using a structured questionnaire prepared for the study purpose.

Secondary data sources such as documents, books reports, journals, research works related to the
topic in CBE is critically reviewed.

3.5. Data Collection Tools

The data used in the study was collected through the administration of a questionnaire to 384
respondents in the study area. The respondents were selected from five (5) operational branches
of the Commercial Bank of Ethiopia which operates in Bale Robe town.

In addition, from the documentation and publication office of the Commercial Bank of Ethiopia
(CBE) attempts were made to explore and extract required information from available literature.

3.6. Population

As of September 2018 the total size of population (clients), at least having one account in CBE
Bale Robe town 5 (five) Branches are 92,572 in number. It is ideally more useful to study a whole
population in a research but, due to resource and time constraints the researcher selected part of
the population. To establish facts that can provide reliable information about a wider population
on the grounds of the results of the research, the researcher were used sample from these
population.

3.7. Sampling Techniques

Considering factors like, cost, time, accuracy of data and its management, the researcher selected
five branches of Commercial Bank of Ethiopia of Robe town, those branches are Sofumer, Sinana,
Woleshe, Goba robe and Madda walabu branches. The population frame of the study were
customers (clients) of CBE, Robe branch in Robe town who have at least one account. Hence,

30
Probability sampling method had been used to select the sample unit; from this systematic random
sampling technique were employed in the study.

Because choosing people from the large group as a representative is reasonably be reliable
approach. The sample size for this study were reliable, because it is selected across various
customers of CBE in Robe branches. Hence, the researcher had been addressed the selected sample
clients through prepared questionnaires.

3.8. Sample size determination

The primary concern of this part is including sufficient and representatives sample size in order to
perform a meaning full analysis. The study area has about 92,572 clients in 5(five) consecutive
branches of Commercial Bank of Ethiopia. Hence, the researcher were selected sample
respondents from these clients.

Formula developed by C. M. Kothari (2004), had been used to determine the total sample size
required for this study.

The formula is given as:

n = z2pq
ME2
Where: n = the required sample size,

Z = the standard normal deviation at the required confidence level,

P = the proportion in the target population estimated to have characteristics being

Measured,

q = 1–p = 0.5

ME = the level of statistical significance set or confidence level

Since, the characteristic of the study does not vary from client to client, to calculate the intended
sample size of the study, the researcher used the following values for each parameter. These
are, the confidence level of the study were 95% with the level of risk 0.05%. Then z =1.96.

31
The expected margin of error or accuracy of estimating the population parameter (ME) were
0.05, and the population distributed on the variable of interest were p=50%. Then the
required sample size was computed as follow:

n = (1.96)2(0.5) (0.5) = 384

(0.05)2
This data can be minimized using correction method provided by C.M. Kothari (2004) as follows:

n (f) =__n____
(1 + (n/N))=384/ (1+ (384/92,572)) = 384

Table 3.1. Number of clients in each branches and sample size

No. Name of Branches Number of Sample Proportion (%)

Customers

1 CBE Sofumer Branch 45246 188 48.9

2 CBE Sinan Branch 22245 92 23.9

3 CBE Woleshe Branch 10220 42 10.9

4 CBE Goba Robe Branch 9924 41 10.7

5. Madda Walabu branch 4943 20 5.5

Total 92578 384 100
Source: Own survey, 2018

Accordingly, the required total sample size of 384 respondents were selected.

3.9. Data Analysis

Based on the objectives of the study, appropriate tools and techniques of analysis such as
descriptive analysis and multiple regression models have been employed. Demographic and socio-
economic conditions of sample respondents in the study areas had been analyzed and used for

32
interpretation of data and drawing conclusions. To analyze the basic demographic data of the
respondents descriptive statistics had been employed.

Multiple regression Model were used to analyze the major determinants of private savings
behavior using SPSS (version 22). The same model was used by Quartey and Blankson (2008) to
assess the behavior of Ghanaians in the 1990s using OLS model. Multiple regression can
establish that a set of independent variables explains a proportion of the variance in a dependent
variable at a significant level (through a significance test of R2), and can establish the relative
predictive importance of the independent variables (by comparing beta weights). One can test the
significance of difference of two R2's to determine if adding an independent variable to the model
helps significantly. The estimates (b coefficients and constant) can be used to construct a prediction
equation and generate predicted scores on a variable for further analysis (Gujarati, 2004).

Multiple Regression analysis were also be applied to study how a response variable Y is dependent
on more than one regressor variables. For this purpose a model had been adapted to the
observations, which can explain Y from all the regressors together. If there are ‘m’ regressors X1,
X2... Xm, then the multiple linear regression model for the observations is as follows:

Y = βo + β1 x1+ β2 x2 + ... + βm xm + E. --------------------------------------- (1)

In this model β0 + β1 x1 + β 2 x2 + ... + βm xm is the systematic (or explanatory) part of the model
and E is the random (or unexplained) part of the model. X1…Xm are the independent variables
(monthly income, family size, financial knowledge, occupation and other demographic factors).
The residual term E is again assumed to be normally distributed with expectation 0 and variance
02. The unknown parameters β0, β1... βm are called the regression coefficients.

Multiple regression model shares the assumptions of correlation: linearity of relationships, it is

important that the model being tested is correctly specified. The analysis and findings of the study
is presented by using table, graph, charts and the like.

3.10. Definitions of variables

It is necessary to identify the potential explanatory variables that would influence the savings
behavior of clients in CBE. Review of literature, past research findings, experts and author’s
knowledge of client’s savings behavior of the study areas were used to identify potential

33
determinants of savings and at the selected banks. Therefore, by assigning the clients saving
behavior as one dependent variable, the following variables are selected to analyze whether they
explain or determine their savings.

Y = βo + β1 x1 + β2 x2 + ... + βm xm + E. --------------------------------------- (1)

A. Dependent variable (Y1): The behavior of clients saving in CBE monthly in ETB. It is a
continuous dependent variable in the model. The dependent variable was measured through the
amount saved in CBE in ETB.

B. Independent variables:

1. Age of the client(X1):- The generalized Life-Cycle Hypothesis implies that the saving
ratio of an individual household depends on the age of the household, ceteris paribus.
Thus, the aggregate household saving ratio depends on the relative share of households
of certain ages in the total number of households. Young people (i.e. those below 18
years in the case of Ethiopia) and the Aged (i.e. above 60 years) are expected not to
save as much as those in the working age (i.e. those between 18 to 60 years). Even
those within the working age, the marginal propensity to save vary considerably.
People in their early stage of work tend to safe less because they accumulate wealth
during that stage. It is difficult to draw clear cut conclusion of the relationship between
age distribution and saving because some empirical studies have found savings rate
increasing among the Aged. But, in general, higher saving is expected when one falls
within the working age whiles the Aged and those below 18 years are expected to save
less or nothing at all.

2. Sex of the client(X2):- In this study in one hand, it is assumed that male clients have
more exposure and access to information and new interventions than female clients,
which might enable them to participate in the financial institutions movement as early
as possible. On the other hand, once female clients have got information about savings
programs and related financial products/services they are strong participants in all
aspects of the financial system. Based on this assumption it is hypothesized that sex
of the clients affects the amount of monthly savings.

34
3. Marital status(X3):- married people are expected to have a higher propensity to save
due to their responsibilities towards children’s education, family needs as well as
social events such as funerals and weddings which place financial demands on many
households. In addition, the need to save to meet unforeseen circumstances like
bereavement and medical bills is greater for older and married people compared to
younger and unmarried individuals.
4. Education level of the client(X4):- Education has a tool to inculcate analytical ability
and skills in students. Schooling may enable people to appreciate the finer things in
life thereby making them efficient in their consumption and saving decisions decision
making process. Fisher (1965) provided a list of personal characteristics, influenced
by education, that would seemingly influence time preferences and hence savings.
These are: self-control, foresight, a habit of thrift, concern for heirs, concern over the
uncertainty of life and concern for fads and fashion. Highly educated persons are more
farsighted and therefore have stronger retirement motives for saving. Education is,
thus, expected to positively relate to saving.
5. Family size(X5):- In the Life-Cycle Hypothesis, the decision unit is treated as
consisting of a constant number of people. However, in reality the membership over
the life cycle of normal household varies which is likely to influence their
consumption time profile and consequently, saving. It has been argued that the higher
the household size, the higher the consumption pattern and all things being equal, the
lower the excess money left after consumption expenditure for saving. A negative
relationship, therefore, is expected between number of dependents and savings growth
rate.
6. Occupation(X6):- Occupation as a means of earning is a very important variable that
influence the saving behavior. The amount of income one makes mostly depend on
his or her occupation and as such, it has postulated that people whose occupation earn
them higher incomes are able to have higher savings than those who are into menial
jobs. In Ghana, Quartey and Blankson (2008) examined that majority of the
households who save were engaged in agriculture but their mean savings were low.
However those engaged in finance, insurance, real estate and business services had
the highest mean current value of savings.

35
 7. Monthly income of the client(X7):- It is a well-established fact that saving is the
residual of income after consumption spending. Income is considered the total cash
flow that an individual earns at a given period of time. The marginal propensity to
save, as argued by Keynes, increases with income. That is to say, higher income
translates into higher savings. The opposite will be the case when income is low. A
positive relationship therefore is expected between households’ income and saving.
The income classification (into low, middle, and high income earners) employed by
this study was the one defined by Ghana Revenue Authority as a benchmark for taxing
workers.
8. Financial knowledge(X8):- According to van Rooij et al. (2012), those with higher
levels of confidence in their financial knowledge are more likely to plan and save for
retirement. Perceived financial knowledge is essential for best practices and positive
financial behaviors such as paying off credit card balances, having an emergency fund,
and saving for retirement.

It is necessary to identify the type of each explanatory variables. Hence, out of the potential 8
(eight) independent variables the only variable i.e., sex of customer is discrete in its type but the
remaining 7 (seven) independent variables in which they would expected to be influence the
dependent variable are the type of continuous in there nature.

Table3.2: The dependent and independent or explanatory variables

S.N Description of variables Types of variables

A Dependent
1
Saving behavior Continuous
B Independent
1 Age of the Client(X1) Continuous
2 Sex of the member(X2) Discrete
3 Education level(X3) Continuous
4 Marital status(X4) Continuous
5 Family size(X5) Continuous
6 Occupation(X6) Continuous
7 Income(X7) Continuous
8 Financial Knowledge(X8) Continuous

36
CHAPTER FOUR

4. DATA ANALYSIS AND PRESENTATION

4.1 INTRODUCTION
This part presents the findings of descriptive statistics and econometric analysis in line with
members’ savings behavior and determinants of savings in Commercial Bank of Ethiopia. This
chapter gives the results of the survey data obtained from questionnaires. The variables were
encoded to SPSS, the data were inserted, then was analyzed, presented, and discussed in this
chapter.

4.2 Response Rate

Response rate is a percentage of the actual samples participated in responding the study
questionnaires on for the researcher after completely filling them to the total of the samples that
The researcher used the responses of the respondents for answered questionnaire for 384 samples
and all 379 of them were returned back completely filled. The researcher found a response rate of
162/167*100% =97%.
4.3. Demography
In this section of the result and analysis the demographic profiles of the respondents were analyzed
and presented in tables. The result which was analyzed and presented in tables was interpreted just
above the table.

4.3.1 Gender
From the following table findings, more than 60% of the respondents are males. This constitutes
sixty point five percent (60.5%) of the respondents who answered the questionnaires. The female
respondents are 39.5 which constitutes 39.5% of the respondents.
Table 4.1 Sex of the respondent

Frequency Percent Valid Percent Cumulative Percent

Valid Male 98 60.5 60.5 60.5
Female 64 39.5 39.5 100.0
Total 162 100.0 100.0
Source: own SPSS data analysis 2019.

37
4.3.2 Age

Age is an important variable that influence the saving. An attentive analysis of the age distribution
shows that the majority of the total sample fall within the 34 to 45 years age group. They are 62
respondents which constitutes 38.3% of the total sample. The ages between 26 to 33 years is the
second highest frequency with 43 respondents constituting 26.5% of the total respondents.
Respondents with the age category (46-55) which is 38 clients constitutes 23.5% followed by the
age category (18-25) of 10 clients which constitutes 6.2%. Few clients (5.6%) reported age above
55 years. One reason that can be attributed to more respondents of the two age groups i.e., ages
of 34 to 45 and 26-33 is due to vigorous nature of activities that take place at this stage. Mostly
those age group have more energy to burn. Table 4.2 illustrates the age distribution of the
respondents.
Table 4.2 Age of the Respondents
Frequency Percent Valid Cumulative
Percent Percent
Valid 18-25 10 6.2 6.2 6.2
26-33 43 26.5 26.5 32.7
34-45 62 38.3 38.3 71.0
46-55 38 23.5 23.5 94.4
>55 years 9 5.6 5.6 100.0
Total 162 100.0 100.0

Source: own SPSS data analysis 2019.

4.3.3 Education
Education helps to acquire knowledge and skill to manage their business. Education helps the
members to know and understand how to manage their money and profitably handled. Human
labor is the great assets in any country. This man power must be educated and trained to sustain
and develop himself and his country.
Most of the respondents have gotten formal education ranging from the basic or elementary school
up to second degree level. The most frequently observed category of Highest Level of Education
was diploma holders (n = 48, 29.6%) followed by degree holders (n = 45, 27.8%). primary
education (1-8) & secondary education (9-10) called other types of educational type respondents
consists (n = 33, 20.4%). 26 respondents (16%) of total sample had have certificate. The

38
respondents which having second degree was 10(6.2%). Table 4.3 below shows the educational
level.
Table 4.3 Education level of the Respondents
Frequency Percent Valid Percent Cumulative
Percent

Valid Certificate 26 16.0 16.0 16.0

Diploma 48 29.6 29.6 45.7

Degree 45 27.8 27.8 73.5

MA/MSc 10 6.2 6.2 79.6

Other 33 20.4 20.4 100.0

Total 162 100.0 100.0

Source: own SPSS data analysis 2019

4.3.4 Marital Status
Of the 162 respondents, Majority 98(60.5%) of the respondents are married, while 62(38.3%) are
single and 2(1.2%) are officially divorced. It is indicated that the family member of married
respondents were the driving force for the livelihood improvement through saving. Table 4.3
shows the marital distribution of the respondents.
Table 4.4 marital status of the Respondents
Frequency Percent Valid Percent Cumulative
Percent
Valid Single 62 38.3 38.3 38.3
Married 98 60.5 60.5 98.8
Divorced 2 1.2 1.2 100.0
Total 162 100.0 100.0
Source: own SPSS data analysis 2019

4.3.5 Occupation Status

The largest share of respondents 58 (35.8%) are engaged in their own business followed by gov’t
employees which constitutes 44 (27.2%). Out of the total sample 43 respondents (26.5%) was
engaged in private organization employee. Few respondent clients 13(8%) were reported that they

39
were engaged in other different activities and lastly 4 (2.5%) respondents are students in their
occupation. Table 4.5 below shows the occupation status of clients.
Table 4.5 Occupation of the Respondents

Valid Cumulative
Frequency Percent Percent Percent
Valid Government 44 27.2 27.2 27.2
Private Organization
43 26.5 26.5 62.3
Employee
Own Business 58 35.8 35.8 35.8
Student 4 2.5 2.5 92.0
Other 13 8.0 8.0 100.0
Total 162 100.0 100.0
Source: own SPSS data analysis 2019
The above data indicates that more than 63% of the customers of the CBE, Robe Branches work
on their own business or hired in private business sectors.

4.3.6 Family Size

The size and composition of family may influence the demand for saving services. In this study,
respondents having a family size of less than 2 was constitutes the largest share 38.3% followed
by the family having 4-5 members 24.7%. Out of the total sample respondents with a family
member of more than five constitutes 19.8%. Lastly 27 respondents with a family size of 2-3
constitutes the share of 17.3%. Table 4.5 illustrates the family size distribution of the respondents.
Table 4.6 Family size

Frequency Percent Valid Percent Cumulative Percent

Valid Less than 2 62 38.3 38.3 38.3
2 to 3 28 17.3 17.3 55.6
4 to 5 40 24.7 24.7 80.2
More than 5 32 19.8 19.8 100.0
Total 162 100.0 100.0
Source: own SPSS data analysis 2019.

40
4.3.7 Income Status

The sample respondent clients were asked to estimate their monthly average income. Nearly 50
(30.9%) of respondents estimates their monthly average income to be in the range of above 10,000
birr, followed by 48 (29.6%) those who estimates their monthly average income to be between
6,001-10,000 birr and 35 (21.6%) who estimates to be between birr 4,001-6000. Out of the
respondents 17 (10.5%) of them constitutes an average income ranging between 2,001-4,000 birr
while 9 (5.6%) had income of 1,001-2,000. The least income range of respondents constitutes 3
(1.9%) estimates their monthly average income to be lower than birr 1,000. The average income
of the respondents were 6812.09 birr. Table 4.7 illustrates the monthly income of the respondents.
Table 4.7 monthly income of the Respondents
Frequency Percent Valid Percent Cumulative Percent
Valid <1000 Birr 3 1.9 1.9 1.9
1000-2000 Birr 9 5.6 5.6 7.4
2001-4000 Birr 17 10.5 10.5 17.9
4001-6000 Birr 35 21.6 21.6 39.5
6001-10000 Birr 48 29.6 29.6 69.1
10,001 Birr and above 50 30.9 30.9 100.0
Total 162 100.0 100.0
Source: own SPSS data analysis 2019

4.3.8 Saving Capacity of Respondents

The sample respondent clients were asked to estimate their monthly average saving out of their
monthly income. Out of the respondents 58 (35.8%) saved an amount less than 1,000 birr per
month followed by 54 (33.3%) who estimated to save 1,001 2,000 birr. 17 (10.5%) respondents
saved an amount ranging between 2,001-4,000 birr while 15 (9.3%) of the respondent clients had
the saving balance ranging between 4,001-6,000 birr per month. The remaining 11(6.8%) of
respondents had reported to save amount of above 10,000 birr while 7 (4.3%) of them was
estimated to save an amount ranging between 6,001-10,000 birr. This shows that most of the
respondents are mainly micro-savers. Table 4.8 below illustrates the monthly saving capacity of
the respondents.

41
Table 4.8 Saving capacity of the Respondents

Frequency Percent Valid Percent Cumulative

Percent
Valid <1000 Birr 58 35.8 35.8 35.8
1001-2000 Birr 54 33.3 33.3 69.1
2001-4000 Birr 17 10.5 10.5 79.6
4001-6000 Birr 15 9.3 9.3 88.9
6001-10000 Birr 7 4.3 4.3 93.2
10001 Birr and above 11 6.8 6.8 100.0
Total 162 100.0 100.0
Source: own SPSS data analysis 2019.

4.4. Descriptive Analysis

The descriptive analysis was made to look at the data collected and to explain the information. In
this study among measure of central tendency mean was found to be suitable. This is because mean
is the simplest measurement of central tendency and is a widely used measure. Its chief use consists
in summarizing the essential features of a series and in enabling data to be compared. It is amenable
to algebraic treatment and is used in further statistical calculations (Khotari 2004).

4.4.1 Challenges of Saving

Table 4.9 challenges facing respondents not to save

S.N Item N Mean

1 I don’t save enough because of high cost of living 162 3.22
2 Transacting with financial institution is time consuming 162 2.12
3 High expenditure on food and clothing is the main reason to lower my 162 3.3
saving
4 Unexpected expenses (illness, home repairs etc.) is the reason not to save 162 3.04
5 Spending what I earn today is better than saving tomorrow’s security 162 1.81
6 I don’t save enough because I don’t have confidence on the bank 162 1.32
7 I would save more if the current interest rate increase 162 2.77
Valid N and Grand Mean 162 1.93
Source: own SPSS data analysis 2019.

42
This part deals with the constraints or the things that hinder the respondents‟ effort to save. The
respondents state their level of agreement on the challenges face in saving. In the above table 4.9,
challenges of saving was evaluated in seven related questions presented to the subjects of the study.
25 (15.43%) of the respondents state that they strongly disagree on the statement that I don’t save
enough because of high cost of living and 33 (20.37%) also disagree to that. So 40 (24.69%) of
the respondents believe, that high cost of living were a big challenge they face in order to not to
save.

The mean value of respondents’ high cost of living as a challenge made them not to save enough
was found 3.22 which is greater than 3 that shows the agreement of the subjects to the item agree.
This shows that high cost of living which is related to inflation is a problem facing the clients not
save enough.

The most frequently observed category of the respondents idea about Transacting with financial
institution is time consuming was disagree (n = 89, 54.93%) and 38(23.45%) also strongly dis-
agree with. So 9(5.5%), 7(4.3%) of the respondents believe, its time consuming transacting with
financial institution.

On the issue concerning High expenditure on food and clothing is the main reason to lower my
saving, 44 (27.16%) agree that, 41(25.3%) strongly believe that high cost of clothing item and
food were the main constraints they face to lower their saving. While 29(17.9) disagree and
24(14.81%) strongly disagree that high expenditure on food and clothing is not the main reason to
lower their savings. 24(14.81%) of the respondents were indifferent this as one of the challenges
sometime they face in saving.

The study finds out if unexpected expenses (illness, home repairs etc.) is the reason not to save
happen to be one factor that can challenge saving. 40 (24.69%) of the respondents dis agree, and
25(15.43%) strongly disagree that they had been not influenced by unexpected expenses and this
is not the challenges sometime they face in saving. 38 (23.45%) agree; 30(18.51%) strongly agree
with the issue of unexpected expense as the big challenge they faced in order to not to save. While
29(17.9%) of the respondents are indifferent as unexpected expense were the reason as a challenge
affecting they saving.

43
The most frequently observed category of “Spending what I earn today is better than saving
tomorrow’s security” was strongly disagree (n = 85, 52.46%). And hence according to most of the
respondents (n = 48, 29.62%), they disagree with the idea they don’t save, because they thought
spending today is better than save tomorrows security. 12(7.4%) of the respondents were having
no idea as spending today and saving tomorrow as the challenges facing their saving. Those who
believe that spending what they earn rather than saving for security is a challenge (strongly agree
and agree groups-9 (5.5%)), 8 (4.9%) of them do not save at all.

Respondents were asked if their main reason they face as a challenge not to save in bank was, they
don’t have confidence on the bank. 114(70.73%) of the respondents strongly dis agree, and
44(27.16%) dis agree that they were not influenced by the idea “I don’t save enough because I
don’t have confidence on the bank” was not a challenge. Only 4(2.4%) of the respondent clients
were not answering as they don’t had confidence on the bank to be their challenge or not as a
reason not to save. None of the respondents were observed to agree with the idea of “I don’t save
enough because I don’t have confidence on the bank” as the constraint they faced.

The current interest rate happens to be as one variable that can challenge saving and hence the
respondents were asked “I would save more if the current interest rate increase”, was strongly
disagree (n = 48, 29.62%), dis agree (n = 33, 20.37%). And hence according to most of the
respondents (n = 36, 22.22%), (n = 21, 12.96%) strongly agree and agree respectively explain the
reason for sensitivity of saving to interest rates as found the challenges and they shows their
positive responses as they were eager to save if the current interest rate increases. 24(14.81%) of
the respondents are not sure if the interest rate to be the challenges they faced as a constraint. The
mean value of respondents’ about the issue of interest rate become a challenge was 2.77 which is
less than 3 that shows the agreement of the subjects to the item dis agree. This shows that interest
rate was not their challenge facing them not to save their money.

44
4.4.2 Financial Knowledge of Respondents
Table 4.10 Descriptive Statistics on customers financial knowledge

N Minimum Maximum Mean Std. Deviation

Have better understanding of how

162 1 5 2.81 .741
to invest own money

Have a very clear idea on

162 1 5 2.91 .970
financial needs during retirement

Have the habit of financial

recording for their income and 162 1 4 2.79 .751
expenditure

Have little or no difficulty in

162 1 5 2.76 1.220
managing their money

Have the ability to prepare own

162 1 5 2.59 1.096
weekly or monthly budget

Have good awareness about the

162 1 5 3.04 1.021
service given by CBE

Valid N (list wise) (Grand mean) 162 2.82

Source: own SPSS data analysis 2019.

The descriptive result showed that respondents’ knowledge about the category of I have better
understanding of how to invest their money are above average. Out of the sampled clients
26(16.04%) agree, 1(0.61%) strongly agree, responded that they know somewhat about how to
invest their money and they showed confidence on their financial management knowledge.

Most of the respondents 51(31.48%) and 2(1.23%) said as they do not know enough and while the
rest and the majority 82(50.6%) of them keep no idea on how to invest their money or on their
financial management knowledge. The observations for better understanding of how to invest their
money ranged from 1 to 5, with an average of 2.81 and (SD = 0.741). Even though the sample
consists of more males than females, it can be observed that women’s are better in understanding

45
the investment of their money. Table 4.11 shows respondent’s understanding of invest their
money.
Table 4.11* respondents understanding of how to invest own money Cross tabulation

Have better understanding of how to invest own money

Strongly Strongly
Disagree Disagree Neutral Agree Disagree Total
Sex of the Male 2 25 56 15 0 98
respondent Female 0 26 26 11 1 64
Total 2 51 82 26 1 162

Source: own SPSS data analysis 2019.

The most frequently observed category of the sampled respondent clients having a very clear idea
of their financial needs during retirement was agree (n = 45, 27.77%). Most of the respondents (n=
43, 21.6%) disagree and 6(3.7%) strongly dis agree on the idea that they have a very clear idea of
their financial needs during retirement. And hence, 59(36.41%) of them have had a neutral idea of
their financial need during their retirement. Hence, the observations for having a very clear idea
of their financial needs during retirement ranged from 1 to 5, with an average of 2.91 (SD = 0.97).
The study investigated that the sample client respondents are good in their attitude about future
financial needs. Figure 4.1 below shows the respondents’ idea about their financial needs during
retirement.

46
Figure 4.1 Bar chart showing respondents financial need during retirement.
Source: own SPSS data analysis 2019.

To measure respondents’ income and expenditure controlling trend, they were asked if they have
the habit of financial records for their income and expenditure, hence the most frequently observed
category was dis agree (n = 81, 50%) and strongly dis agree (n = 7, 4.32%). And hence most of
the respondents (n= 30, 18.5%), agree on the idea that they have the habit of financial records for
their income and expenditure while a large number of respondents 44 had have no idea of recording
their income and expenditure. Hence, the observations for habit of financial records for their
income and expenditure ranged from 1 to 4, with an average mean of 2.61 and (SD = 0.751).Thus,
since lack of having a written goal and unplanned expenditure discourages saving, the concerned
body can interfere to improve the planning and expenditure controlling culture of the client as well
as the community to enhance saving of the client. Table 4.12 shows respondent’s habit of financial
recording for their income and expenditure.

47
Table 4.12 * habit of financial recording for their income and expenditure Cross
tabulation

Have the habit of financial recording for their income

and expenditure
Strongly
Disagree Disagree Neutral Agree Total
Sex of the Male 3 51 29 19 102
respondent Female 4 30 15 11 60
Total 7 81 44 30 162
Source: own SPSS data analysis 2019.

It is also observed that 39 (24.07%) and 30(18.51%) of the sampled respondents have had little or
no difficulty in managing their money. Most of the respondents (n= 49, 30.24%), (n= 13, 8.02%)
with the level of agree and strongly agree respectively reported that they had a difficulty in
managing their money. While the rest of them (n= 31, 19.13%) of the respondents were indifferent
in the difficulty of managing their money.

The observations for habit of difficulty in managing their money ranged from 1 to 5, with an
average mean of 2.76 and (SD = 1.22). This shows that the respondents are somehow in a difficulty
in managing their money which implies that there is lack of financial knowledge. Therefore,
creating an awareness about how to manage their money and suggesting an advice about financial
information would be a homework for the concerned body i.e., may be for the bank society. Table
4.13 shows respondent’s habit of financial management of their money.
Table 4.13* Have little or no difficulty in managing their money Cross tabulation

Have little or no difficulty in managing their money

Strongly Strongly
Disagree Disagree Neutral Agree Agreed Total
Sex of the Male 17 23 21 31 6 98
respondent Female 13 16 10 18 7 64
Total 30 39 31 49 13 162
Source: own SPSS data analysis 2019.

48
In addition, the study finds out “the ability to prepare the respondents own weekly or monthly
budget” happen to be one factor related with financial knowledge of the respondent clients.
54(33.33%) dis agree and 29(17.9%) strongly dis agree that they believe they don’t have had the
ability of preparing their own weekly or monthly budget. 39(24.07%) and 3(1.85%) showed
confidence on their financial knowledge through the ability to prepare their own weekly or monthly
budget.

While the rest 37(22.83%) explain the insensitivity of their financial knowledge of preparing
timely budget. Hence, the observations for the ability to prepare my own weekly or monthly budget
ranged from 1 to 5, with an average of 2.59 and (SD = 1.09). This also shows that most of the
respondents are familiar with a problem of not having the ability and habit of preparing a timely
budget.

Figure 4.2 shows respondent’s ability to prepare their timely budget

Source: own SPSS data analysis 2019.

Finally, in this part respondents were asked to answer their “level of awareness about the service
given by financial institution” as a factor of financial knowledge. Among the total sampled
respondent clients, (n= 63, 38.9%) agree and (n= 74, 45.67%) strongly agree believe that they have
had a good awareness regarding the service given by financial institution. (n= 8, 4.9%), (n= 5,
3.08%) dis agree with the idea of “My awareness about the service given by financial institution
is good”. While the rest (n= 12, 7.4%) didn’t answering about their level of awareness about the

49
service given by financial institution. Hence, it is also observed that, the majority of the
respondents are fully aware of the services given by financial institutions. This is may be because
of the accessibility of financial institutions i.e., Banks especially commercial bank of Ethiopia are
available anywhere of the proximity of the society, and this also may affect saving behavior of the
clients.
Generally, the descriptive statics of the client’s financial knowledge shows that a mean value of
2.82 which indicates that financial knowledge is one of the challenging factor for clients’ saving
behavior in the study area. Thus emphasis should be given to create and strengthen the financial
knowledge and awareness of clients to save through educational and awareness creation
opportunities to the clients.

Table 4.14 General Descriptive Statistics of customers financial knowledge

N Minimum Maximum Mean Std. Deviation

Financial Knowledge 162 1.00 5.00 2.8210 .79521
Valid N (list wise) 162
Source: own SPSS data analysis 2019.

4.5. General Descriptive Statistics of customers saving behavior

The following table describes the general statistical description of saving behavior in CBE
branches of Robe Town. Thus the mean value of saving behavior is 2.265 and the standard
deviation is 1.332. The mean value indicates that it is below the average, and the standard deviation
implies as there is inconsistency in the saving behavior of the clients. So that the CBE branches
under the study need to be work a lot in improving the saving behavior of these clients.

General descriptive statistics of saving behavior

N Minimum Maximum Mean Std.
Deviation
Saving 162 1.00 5.00 2.2654 1.33185
Behavior
Valid N (list 162
wise)

50
4.6. Determinants of Saving Behavior of Clients
4.6.1. Correlation Analysis
To identify factors that influence the savings of behavior of clients of CBE (the last objectives of the
study), multiple regression was used to ascertain the variables which significantly influence the
saving behavior of clients. Eight variables were included that significantly influence the saving
behavior of clients. The variables are: sex, age, marital status, education, family size, occupation,
income and financial knowledge.

4.6.2 Coefficient of Correlation

Karl Pearson‟s coefficient of correlation (r) is used to establish the relationship between the variables
under studied. It also indicates the direction and how much relationship exist between the variables.
The value of correlation lies between positive one to negative one. Table 4.12 shows the correlation
between variables.

The correlation result provides some of the significant variables as well as having the highest value
of the coefficient of determination (R2) of 0.615. Out of the eight variables that were expected to
determine saving behavior by CBE clients only three variables were statistically significant.
Occupation, income and financial knowledge were statistically significant and have a positive
correlation with saving behavior.

From the table 4.15, there is a negative correlation between Gender and Individual Savings behavior.
It is shown by a correlation figure of (-0.114) and it is not significant; Age and Individual Savings
behavior have a correlation figure of 0.069 (0.127) with not having significant; marital status and
Individual Savings behavior have a correlation figure of 0.019 (0.137) but having not significant;
education level and Individual Savings behavior have a correlation figure of 0.004 (0.116) with no
having statistical significant; family size and Individual Savings behavior have a correlation figure
of -0.037 (0.091).
While the rest three variables namely: Occupation, income and financial knowledge were statistically
significant and have a positive correlation with saving behavior by having a correlation figure of
0.279, 0.708 and 0.585 respectively and with a significant level below 0.05 statistically significant
p-value (P <0.0000).

51
Table 4.15 Showing correlation between variables

Occupation
Sex of the Age of the Marital Educational Family of the Monthly Financial Saving
respondent Respondents Status Level size Respondents income Knowledge Behavior
Sex of the Pearson
1 -.106 -.007 -.005 -.039 .010 -.120 -.056 -.114
respondent Correlation
Sig. (2-
.181 .926 .951 .622 .897 .128 .476 .149
tailed)
N 162 162 162 162 162 162 162 162 162
Age of the Pearson
-.106 1 .747** .033 .765** -.045 .180* .069 .127
Respondents Correlation
Sig. (2-
.181 .000 .680 .000 .567 .022 .381 .107
tailed)
N 162 162 162 162 162 162 162 162 162
Marital Pearson
-.007 .747** 1 -.026 .779** -.069 .225** .019 .137
Status Correlation
Sig. (2-
.926 .000 .740 .000 .380 .004 .807 .083
tailed)
N 162 162 162 162 162 162 162 162 162
Educational Pearson
-.005 .033 -.026 1 -.047 .085 .034 .004 .116
Level Correlation
Sig. (2-
.951 .680 .740 .555 .282 .666 .959 .142
tailed)
N 162 162 162 162 162 162 162 162 162
Family size Pearson
-.039 .765** .779** -.047 1 -.065 .167* -.037 .091
Correlation
Sig. (2-
.622 .000 .000 .555 .411 .033 .643 .248
tailed)
N 162 162 162 162 162 162 162 162 162
Occupation Pearson
.010 -.045 -.069 .085 -.065 1 .126 .288** .279**
of the Correlation
Respondents Sig. (2-
.897 .567 .380 .282 .411 .110 .000 .000
tailed)
N 162 162 162 162 162 162 162 162 162
Monthly Pearson
-.120 .180* .225** .034 .167* .126 1 .445** .708**
income Correlation
Sig. (2-
.128 .022 .004 .666 .033 .110 .000 .000
tailed)
N 162 162 162 162 162 162 162 162 162
Financial Pearson
-.056 .069 .019 .004 -.037 .288** .445** 1 .585**
Knowledge Correlation
Sig. (2-
.476 .381 .807 .959 .643 .000 .000 .000
tailed)
N 162 162 162 162 162 162 162 162 162
Saving Pearson
-.114 .127 .137 .116 .091 .279** .708** .585** 1
Behavior Correlation
Sig. (2-
.149 .107 .083 .142 .248 .000 .000 .000
tailed)
N 162 162 162 162 162 162 162 162 162

**. Correlation is significant at the 0.01 level (2-tailed).

*. Correlation is significant at the 0.05 level (2-tailed).

52
4.6.3 Correlation Matrix
Correlation matrix indicates the relationship between two independent or independent dependent
variables. Correlation matrix examines the direction of relationship among two variables and how
one variable is related to another. Correlation matrix also indicates the problem of multicollinearty.
If coefficient of correlation among two explanatory variables has absolute value equal or above 0.80,
there is severe problem of multicollinearty (Gujarati, 2004).
Table-4.15 above represents the correlation among some selected independent variables and verifies
no problem of multicollinearty, as all values are less than 0.7. Hence there is no multicollinearty
among the independent variables.

4.6.4 Coefficient of Determination

Table 4.16 shows the coefficient of determination of 0.784 which implies there is a positive
relationship between the variables under studied. The R square (R2) is the explanatory power which
shows that 0.615 of saving behavior is explained by sex, age, educational level, marital status, family
size, occupation, monthly income and financial knowledge. Table 4.16 shows the detailed:

Table 4.16 showing the coefficient of determination

Change Statistics

Std. Error
Adjusted R of the R Square F Sig. F
Model R R Square Square Estimate Change Change df1 df2 Change

1 .784a .615 .594 .84822 .615 30.492 8 153 .000

53
a. Predictors: (Constant), Financial Knowledge , Educational Level, Marital Status, Sex of the
respondent, Occupation of the Respondents, Monthly income, Age of the Respondents, Family size
4.6.5 ANOVA (Analysis of Variance) a
The study used ANOVA to establish the level of significance of the regression with f statistic value of p
less than 0.05 with confidence level above 95%. Table 4.17 shows the ANOVA.
Model Sum of Df Mean Square F Sig.
Squares
Regression 175.506 8 21.938 30.492 .000
Residual 110.081 153 .719
Total 285.586

Source: own SPSS data analysis 2019

a. Dependent Variable: Saving Behavior
b. Predictors: (Constant), Financial Knowledge , Educational Level, Marital Status, Sex of the
respondent, Occupation of the Respondents, Monthly income, Age of the Respondents, Family
size
Source: own SPSS data analysis 2019.
4.6.7 Multiple Regression
From Table 4.17, the regression equation can be established as:
Y= -2.278 +0.09X1-0.042X2+0.038X3+0.088X4+0.039X5+0.129X6+0.570X7+0.518X8 + e.
Where,
Y= dependent variable (saving behavior)
X1 = the gender
X2 = the age
X3 = the marital status
X4 = the education
X5 = the family size
X6 = the occupation
X7 = the monthly income
X8 = the financial knowledge
e = the error term

54
Table 4.17 Showing the Regression Coefficients

95.0%
Unstandardized Standardized Confidence Collinearity
Coefficients Coefficients Interval for B Statistics
Std. Lower Upper
Model B Error Beta t Sig. Bound Bound Tolerance VIF
1 (Constant) -2.278 .442 -5.158 .000 -3.151 -1.406
Sex of the
respondent -.091 .139 -.034 -.657 .512 -.366 .183 .962 1.039

Age of the
Respondents -.042 .116 -.031 -.362 .718 -.272 .188 .339 2.953

Marital Status .038 .229 .015 .166 .868 -.415 .491 .327 3.056
Educational
.088 .050 .089 1.751 .082 -.011 .188 .976 1.025
Level
Family size .039 .103 .034 .380 .704 -.165 .243 .308 3.248
Occupation of
the Respondents .129 .059 .116 2.191 .030 .013 .246 .903 1.107

Monthly income .570 .061 .545 9.353 .000 .450 .690 .742 1.348
Financial
Knowledge .518 .099 .310 5.241 .000 .323 .714 .722 1.384

a. Dependent Variable: Saving Behavior

Source: own SPSS data analysis 2019

From the regression equation, if all factors are taking constant at zero, the individual savings behavior
will be -2.278. The findings also show that if all other independent variables are taking at zero; in
gender, if the respondent is a male, will tend to decrease 0.091 of the individual savings behavior but
female respondents have no decrease effect; Age is negatively related to saving but it is also
insignificant and it explains non-linear relationship between age of the client and saving behavior of
the clients. a unit increase in age will lead to a 0.042 decrease in individual savings behavior; in
marital status (if the person is married) will tend to have an increase of 0.038 in individual savings
behavior; a unit increase in education will lead to a 0.088 increase in individual savings behavior; a
unit increase in occupation will lead to a 0.129 increase in individual savings behavior; a unit increase
in personal monthly income will lead to a 0.570 increase in individual savings behavior; a unit
increase in financial knowledge will lead to a 0.518 increase in individual savings behavior.

55
According to the equation, sex and age has a negative relationship with private savings behavior.
Marital status, Family size, education, occupation, personal income and financial knowledge also
have a positive relationship with individual savings behavior with monthly income, occupation and
financial knowledge contributing most to the dependent variable. But the p-values for sex, age,
marital status, education and family size are greater than the common alpha level of 0.05, which
indicates that they are statistically insignificant. The predictor variables of occupation, monthly
income and financial knowledge have variables coefficients statistically significant since their p-
values are less than the common alpha level of 0.05.

56
CHAPTER FIVE
5. SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATION
5.1. Introduction
This chapter deals with summary of the findings and conclusion of the study. It also gives
recommendations to financial institutions and government. Further studies and research suggestions
are also given.
5.2. Summary of Finding

Saving is very important for both short and long term development and economic growth of a
country. The study has examined the determinants of private saving behavior of clients of
Commercial Bank of Ethiopia. The study on demographic characteristics of the respondents show
male respondents more than female respondents. The greatest number of the respondents fall between
the ages of 26 to 45. Most of the respondents have basic education ranging from elementary/primary
school to master’s degree. Majority of the respondents are married with children. There are more
respondents engaged in their own business. Majority of the respondents receive personal monthly
income of above 10,000 birr.

On the constraints on the effort to save, most of the respondents believe there is a big problem they
are facing with high cost of living. This shows that high cost of living which is related to inflation is
a problem facing the clients not save enough; there are High expenditure on food and clothing item
which lead to lower saving; unexpected expenses (illness, home repairs etc.) is the reason they are
facing as a challenge not to save.

On the level of financial knowledge, majority of the respondents Have better understanding of how
to invest own money with greater number of them have a very clear idea of their financial needs
during retirement. Most of the respondents are not having the habit of financial recording for their
income and expenditure patterns. Majority of the respondents are seriously lacks the ability to prepare
their own weekly or monthly budget. It’s shown that almost all the respondents believe that they
have had a good awareness regarding the service given by financial institution.

In identifying factors that determine private saving, the relationship between independent and
dependent variables, Karl Pearson‟s coefficient of correlation (r) is used. All the independent

57
variables except sex (age, education, marital status, family size, occupation, personal monthly
income and financial knowledge) have a positive relationship with saving behavior with monthly
income having the greatest of 0.708. The study has coefficient of determination (R) of 0.784 with R
square of (R2) of 0.615. The regression equation established shows if all factors are taking constant
at zero, the private savings behavior will be -2.278.

The findings also show that if all other independent variables are taking at zero; in gender, if the
respondent is a male, will tend to decrease 0.091 of the private savings behavior but female
respondents have no decrease effect; a unit increase in age will lead to a 0.041 decrease in private
savings behavior; in marital status (if the person is married) will tend to have an increase of 0.038 in
private savings behavior unit increase in education will lead to a 0.088 increase in private savings
behavior; a unit increase in occupation will lead to a 0.129 increase in private savings behavior; a
unit increase in monthly income will lead to a 0.570 private savings behavior and a unit increase in
financial knowledge will lead to a 0.518 increase in individual private savings behavior.

According to the equation, gender and age has a negative relationship with individual savings
behavior. Education, marital status, family size, personal income and financial knowledge also have
a positive relationship with individual savings behavior with monthly income, occupation and
financial knowledge contributing most to the dependent variable. But the p-values for gender, age,
education, marital status and family size are greater than the common alpha level of 0.05, which
indicates that they are statistically insignificant. The predictor variables of occupation, personal
monthly income and financial knowledge have variables coefficients statistically significantly since
their p-values are less than the common alpha level of 0.05.
5.3. Conclusion

In this study efforts were made to determine the saving behavior of Bale robe town clients of
commercial bank of Ethiopia for the case of Bale robe town CBE five operational branches. In
conclusion the descriptive analysis showed that the majority of sample clients practiced saving and
the common reasons for clients not to save are high cost of living (inflation), High expenditure on
basic needs, unexpected expenses and low interest rate. The planning and expenditure controlling
habit or the ability to prepare own weekly or monthly budget of most respondents was found minimal.

58
Besides, the economic analyses shows that income, occupation and financial knowledge are
significant determinants of client’s savings behavior in the study area.

The study shows that gender, age, education, marital status and family size have statistically
insignificant influence on saving behavior. Age of the client sex of the sample client had found
statistically in significant with expected negative sign. While education, marital status and the clients
family size also determines saving positively but its insignificant. That is, clients with large family
size save less than clients with small family size.

The variables Income turned out to be statistically significant at 5 percent level of confidence with
expected positive sign. Income is the most crucial factor of the saving behavior in the entire study.
In the study area, a one percent increase in income leads to 57.0 percent increase in client’s savings.
Higher income client save more than those of lower income. Income was found to determine saving
positively and significantly. Occupation and financial knowledge of the client is also one factor that
determine saving positively and significantly at 5 percent level of confidence.
5.4. Recommendation

It is obvious that the level of saving in Ethiopia is very low; even it is less than from saving of low
income sub Saharan Africa countries. It is not secret that saving contributes a lot for economic growth
and development. Thus, what measures should be taken to improve saving in the country in general
and in CBE in particular. Based on the study findings the researcher recommend the following policy
recommendations.

• Since income is the major determinant of saving then, due attention should be given to increase
income of society. Income could be increased by implementing policies that increases the
employment opportunities and reduce underemployment and disguised unemployment.

• Since financial knowledge has received greater attention in recent times, it is believe that an
increase in financial knowledge will help the individuals to make better decision concerning the
financial service. More financial knowledge programs should be organized by the financial
institution to create awareness. The government should also include financial knowledge in the
educational curriculum of the basic or elementary schools and higher learning institutions.

59
• The financial institutions should create financial products which are tailor to various individual
needs. Again, those institutions should create many outlet, since savings do not benefit only the
individual but the economy as a whole.

• Government policy intervention should focus on increasing the availability various occupation
opportunity for the society and improving unemployment combating strategies to augment saving
capacity of the society.

• Finally, CBE should formulate strategy of offering financial education to enhance the saving
behavior of majority of the low income clients, which is its core market segment.

60
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Appendix

Appendix A

Madda Walabu University

College of Business and Economics

School of graduate studies
(Research Questionnaire to be filled by Customers of CBE ROBE Town)

Dear Respondent;

I am currently a student of Madda Walabu University in school of Business and Economics for
my second degree in Development Economics. I am doing my project on “Determinants of
Private saving Behavior of clients of Commercial Bank of Ethiopia.”

The purpose of this questionnaire is to assess the Determinants of Private Saving Behavior in
Robe Town the case of commercial bank of Ethiopia. The questionnaire has two parts, part 1
personal information and part 2 questions related to the topic. Each part of the questionnaire
contains a series of closed-ended items to be rated as per the given scales to be answered.

There is no right or wrong answer, but your response has to indicate what you perceive, feel or
do at work place. Thus, the researcher would kindly request you to respond to those items
frankly and honestly. Your cooperation is very crucial and compulsory to achieve the desired
objectives of the study. Your response will be very confidential and will only be used for this
study purpose only. There is no need to write your name on any part of this questionnaire.
Finally, the researcher would like to thank you for your genuine, unreserved and valuable
responses you made as requested.

Leul Abebe
Madda Walabu University
Part 1. Personal Information
For items no.1 to 11, provide your responses by putting (X) in the box. Any item that is left
incomplete would affect the result of the study. So, I kindly request you to complete all items.

68
 1. Gender a/Male

2. Age ……….

3. Marital status, a/Single b/Married c/Divorced

4. Educational qualification? A/ Certificate b/Diploma

C/ BA/BSC d/ MA/MBA/MSc e/ PhD

If others please specify _ _____________________

5. With how much number of Family size do you live? ………

6. Occupation, a/Government Employee b/Private Organization Employee

c/ Own Business d/Student

If other Please specify…………
7. What is your monthly average income? …….
8. How much do you save every month? ……
Part II: Questions related to the study topic.
Instruction: Please tick the number that you feel most appropriate using the scale 1 to 5.
Scale

5. Strongly Agree 4. Agree 3. Neither agree nor disagree (neutral)

2. Disagree 1. Strongly disagree

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Items DIMENSIONS 1 2 3 4 5

A. Challenges of Saving
1. I don’t save enough because of high cost of living
2. Transacting with financial institution is time consuming
3. High expenditure on food and clothing is the main reason to lower my
saving
4. Unexpected expenses (illness, home repairs etc.) is the reason not to
save
5. Spending what I earn today is better than saving tomorrow’s security
6. I don’t save enough because I don’t have confidence on the bank
7. I would save more if the current interest rate increase
B. Financial Knowledge
1. I Have better understanding of how to invest my own money
2. I Have a very clear idea on financial needs during retirement
3. I Have the habit of financial record for my income and expenditure
4. I Have little or no difficulty in managing my money
5. I Have the ability to prepare my own weekly or monthly budget
6. I Have good awareness about the service given by CBE

Please, check once for questions note answered, if any!!!!!!

Thank you very much!!!!!

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According to the Appendix Table1: VIF of the continuous explanatory variables

Variables R2 VIF
F_SIZE .244 1.32
_AGE .236 1.31
INCOM .697 3.30
EDUCA .088 1.10
OCCUP .486 1.95
F-KNOW .657 2.92

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 ANOVA with Friedman's Test and Turkey’s Test for Non additivity
Sum of Mean Friedman's Chi-
Squares df Square Square Sig
Between People 390.656 161 2.426
Within Between Items 1161.890 8 145.236 628.760 .000
People Residual Non
43.248a 1 43.248 46.784 .000
additivity
Balance 1189.750 1287 .924
Total 1232.999 1288 .957
Total 2394.889 1296 1.848
Total 2785.545 1457 1.912
Grand Mean = 2.5583
a. Turkey’s estimate of power to which observations must be raised to achieve additivity = .046.

than the common alpha level of 0.05, which indicates that they are statistically
insignificant. The predictor variables of occupation, monthly income and financial
knowledge have variables coefficients statistically significant since their p-values are less
than the common alpha level of 0.05.

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 Intra class Correlation Coefficient
95% Confidence Interval F Test with True Value 0
Intra class Lower Upper
Correlation Bound Bound Value df1 df2 Sig
Single
.146a .103 .199 2.535 161 1288 .000
Measures
Average
.605c .508 .691 2.535 161 1288 .000
Measures
Two-way mixed effects model where people effects are random and measures effects are fixed.
a. The estimator is the same, whether the interaction effect is present or not.
b. Type C intra class correlation coefficients using a consistency definition. The between-
measure variance is excluded from the denominator variance.
c. This estimate is computed assuming the interaction effect is absent, because it is not
estimable otherwise.

73