UNIVERSITY OF GONDAR

COLLEGE OF AGRICULTURE AND ENVIRONMENTAL SCIENCE

DEPARTMENT OF AGRICULTURAL ECONOMICS

RESEARCH PROPOSAL ON DETERMINANTS OF RURAL HOUSEHOLD

SAVING IN THE CASE OF TEDA DISTRICTS IN GONDAR ZONE,
ETHIOPIA

PREPARED BY; ID

1, MULUKEN ABINET…………………………………… 00632/12

2, AMANUEL ZEWDU…………………………………… 02146/12

3, TAMRAT DESALEGN……………………………………00011/12

ADVISOR: FKREMARYAM B.

SUBMITION DATE

DECEMBER,2022

GONDAR ETHIOPIA
 ACKNOWLEDGMENT
First of all, we would like to thank God who always with us and keeping us for successful of our
work. Next, we would like to thanks our advisor Fikremariam B.(MS) who gives constructive
comment during the work and giving any information related to our work. The last but not the least
we would like to all my class friends who contributed and shared ideas and opinions during the
time of proposal work without looking right and left for our work and we would like to thanks
computer staff to support and give internet access freely for a successful work. So, thank you all.

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ACKNOWLEDGMENT................................................................................................................................ i
LIST OF TA\BLE ........................................................................................................................................ iii
LIST OF FIGURES ..................................................................................................................................... iii
ACRONYM/ABBREVIATION ................................................................................................................... v
1. INTRODUCTION .................................................................................................................................... 1
1.1. Background of the Study ....................................................................................................................... 1
1.2 Statement of the Problem .................................................................................................................. 3
1.3 Objectives ......................................................................................................................................... 4
1.3.1 General Objectives ..................................................................................................................... 4
1.3.2 Specific Objectives .................................................................................................................... 4
1.4 Research Questions ........................................................................................................................... 4
1.5 Scope and limitation of the study...................................................................................................... 4
1.6 Significance of the study ................................................................................................................... 4
1.7 Organization of the paper.................................................................................................................. 5
2. LITERATURE REVIEW ......................................................................................................................... 6
2.1. Theoretical Literature Review ........................................................................................................... 6
2.1. 1. Definition of Saving ................................................................................................................... 6
2.2. Empirical Literature .......................................................................................................................... 8
2.2.1 Relationship between Saving and Income ................................................................................. 9
2.2.2 Saving Patterns of Household and Money Owed to the Households ....................................... 10
2.2.3 Saving and Money Deposited in Banks ................................................................................... 11
2.2.4 Saving Behavior and Household Investments.......................................................................... 11
2.2.5 Saving Behavior and Preference for Saving ............................................................................ 11
2.3 Conceptual Farmwork ....................................................................................................................... 11
3. RESEARCH METHDOLGY ................................................................................................................ 13
3.1 Description of the study area ............................................................................................................ 13
3.2 Sources and Data Collection Methods ............................................................................................ 14
3.3 Research Design.............................................................................................................................. 15
3.4 Type and Source of Data................................................................................................................. 15
3.5 Sample Size..................................................................................................................................... 15
3.6. Sampling Technique ........................................................................................................................ 16

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 3.7 Methods of Data Analysis ............................................................................................................... 16
3.7.1 Econometric Analysis .............................................................................................................. 17
3.7.2 Analysis of Descriptive Statistics ............................................................................................ 17
3.7.3 Inferential Analysis .................................................................................................................. 17
3.7.4. Multiple Linear Regression Analysis ........................................................................................ 17
3.7.5. Regression Function.................................................................................................................. 18
3.8. Model Specification ......................................................................................................................... 18
3.9 Definitions of Dependent and Independent Variables .................................................................... 18
3.10. Hypothesis.................................................................................................................................... 21
4. WORK PLAN AND BUDGETING ....................................................................................................... 22
4.1. Working plan .................................................................................................................................. 22
4.2. Budget setting .................................................................................................................................. 23
6. REFERENCES ....................................................................................................................................... 24

LIST OF TA\BLE page No.

Table 2. table of dependent and independent variables ........................................................................ 12

Table 3 Sample distribution of Respondents .......................................................................................... 16
Table 4 hypothesis ..................................................................................................................................... 21
Table 5general working schedule ............................................................................................................ 22
.Table 6 Stationery and consumable expense ......................................................................................... 23
Table 7 .Miscellaneous expense................................................................................................................ 23

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 List of figure
Figure 1: Sketch of the study area ........................................................................................................... 14

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 ACRONYM/ABBREVIATION
APC Average Propensity to Save

LCH Life-Cycle Hypothesis

MPC Marginal Propensity to Consum

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 EXECUTIVE SUMMARY

Development economics have for several decades recognized the importance of the mobilization
of domestic savings for economic growth in developing countries. However, saving level in
Ethiopia is very low and little is known empirically about its patterns and determinants. In
Ethiopia, especially in the north Gondar zone in Teda sub-district, there is very poor access to
savings and credit institutions and a lack of motivation of households to develop their habits of
saving. This study will try to fill the gap by providing insight into the households in the
improvement of the habits of saving of households in the study area. In general, this study will
address the determinants of the household habit of saving in order to improving the income of
households in the study area.

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 1. INTRODUCTION

1.1. Background of the Study

Ethiopia is a developing country where the national saving rate has consistently increased
throughout the period of independence, despite significant changes from year to year. The goal of
the current study is to examine the factors that influence and the patterns of saving behavior in
Ethiopian rural families (Prinsloo, J.W., (2000). Every nation should include saving as a key factor
in its analysis of economic growth and development. Saving is a significant macroeconomic factor
that should be investigated both on an individual and a household level in the context of the
economic sphere.

Saving is a key factor in determining economic growth, according to Adam Smith, David Ricardo,
and J.S. Mill, among other classical economists. Wellness can be proven by saving components
that are based on an individual or family basis. Savings serve as a buffer for an individual's future
interactions with unforeseen, impending, and unknown life circumstances. The portion of income
that people save comes from their earnings. Although it aids in the multiplier process, a larger
marginal propensity to save is necessary for the country to have stronger economic growth. Rural
and urban areas have different saving habits and factors.

Savings is one of the key factors in any nation's economic development. Savings refers to revenue
that is not immediately spent on purchasing goods and services. The foundation for capital
generation, investment, and national growth is saving. Savings and investment gaps are serious
issues for developing nations like Ethiopia. Due to this disparity, these nations struggle to employ
domestic savings to finance investments necessary for growth (Kifle, 2012).

In the short term, it is also usual for these countries to finance their investments in part through
domestic government borrowings and/or international loans and grants, but this would greatly raise
the country's debt burden and would not be a long-term solution, according to Kifle (2012). The
importance of either economic component, however, is not highlighted as a key factor for
interventions for overall development in Africa in general or Ethiopia in particular. This is true

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mostly as a result of: First of all, the majority of field research have been conducted on rich
economies, failing to depict the actual situation in underdeveloped developing nations. Second,
although the majority of research used a macroeconomic perspective, they did not consider how
economic units behaved overall.

The saving level in Ethiopia particularly in rural areas is very low and little is known empirically
about its patterns and determinants. Savings in rural Ethiopia is mainly made out of the income
from agricultural activities (Kifle, 2012).Rural households do, however, save money in the form
of material possessions and/or in forms of money that may be used by savings institutions and for
investments, which are crucial for both households and the country.

Domestic savings consists of three compromise savings are important determinants of household
welfare(Freidman,1957).On one hand, without savings, households have few other mechanisms to
smooth out In recent years, economists, international organizations, and governments in
developing countries have placed increasing emphasis on the mobilization of deposits, not only
to increase domestic savings, to achieve sustained economic growth and development but also to
strengthen domestic financial intermediaries

Due to investors' severe financial and moral losses during the most recent financial crisis, there
have been significant negative effects on the global economy. These occurrences demonstrated the
importance of saving, and particularly its distribution in the national economy. Saving is crucial
for the growth of industrial and financial systems and is also the sole way for households to build
wealth in the absence of credit and insurance markets (Girma,2013). Although there is controversy
regarding the relation between savings and economic growth, it is generally agreed that once
savings start to rise-perhaps due to increases in income-they enhance the potential to finance
investment, and lead to the creation of more opportunities in the economy. Household saving
could be accumulating in real assets or financial assets. Large part of saving accumulation in
developing countries is in the form of real assets. These include livestock, precious metals, or food
stocks. However, these real assets less useful for industrial activities since it does not liquid. The
weakness saving in real assets is important reason for household in developing countries to save
in financial assets. They could save in banks or non-bank financial institutions in cash form. In
this respect, access to financial institution that meets liquidity needs is crucial. This is the reason

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to introduce rural financial institution such as saving and credit cooperatives that strategic in order
to increase financial savings and loan facilities (kifle, 2012).

1.2 Statement of the Problem

Saving is a crucial element that helps individuals, families, and corporate organizations deal with
or respond to any situation that arises. Savings are typically used to cover unexpected expenses;
however, they can occasionally be used as an investment. However, there are instances when
people are not inclined to save, and ignorance is a very delicate factor. The current study may be
pertinent to understanding the causes of households' reduced saving rates as well as the factors that
influence saving depending on any number of (Girma, 2012). For effective economic planning,
planners need to be aware of how many different demographic groups save, as well as how to
increase savings even more and more effectively. Saving more money while also spending more
is currently the main competing element affecting the economy. The researcher concentrated on
the factor that influences household saving behaviors, which has not been thoroughly examined in
Ethiopia. In Ethiopia, especially in the north Gondar zone in Teda sub-district, there is very poor
access to savings and credit institutions and a lack of motivation of households to develop their
habits of saving. This study will try to fill the gap by providing insight into the households in the
improvement of the habits of saving of households in the study area. Having the constraints and
gaps in mind, this study will be used to show the major performance and problems on the
household habits of saving in the study area and to saving habit improvement actors to improve
the income or standard of living through providing some possible solutions in the major constraint
areas which base the major findings. In general, this study will address the determinants of the
household habit of saving in improving the income of households in the study area.

The households in this district currently have a negative influence due to their lack of knowledge
about saving and access to adequate savings and credit institutions. Therefore, it is vital to
comprehend the factors that influence both households saving behavior and pattern in the district's
rural families. Knowing about people's saving intentions is necessary in order to promote calls for
saving. Calculating the saving tools that can effectively encourage saving requires an
understanding of the preferences for saving.

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1.3 Objectives

1.3.1 General Objectives

The general objective is assessing the determinants of households saving in the case of Teda
district.

1.3.2 Specific Objectives

To identify the factors affecting the growth of households saving in Teda district.
To assess the performance of households toward their saving culture in the study area
To identify the major constraints that influence household saving patterns.
1.4 Research Questions
What are the factors affecting the household saving in the areas of Teda district?
What looks like the saving performance of households in Teda district?
What are the constraints which face households’ saving habits?
1.5 Scope and limitation of the study
The study will be conducted in the Teda district around the Gondar zone in the Amhara region that
focuses on the determinants of household habits of saving. The limitations that will be faced during
the study area, are mainly in the collection of data that are relevant to our study. In collecting data,
the absence of relevant, accurate, and specified secondary and primary data in the study area will
its own obstacle to analysis. It will be focused on identifying the determinant factors that force
people to their saving habits and use the savings of institutions. In this area; as far as the time limit
is concerned this study will focus on the current situation of households’ habit of saving.

1.6 Significance of the study

There are not many studies conducted or available relating to the determinants of the saving pattern
of the rural people of Ethiopia at the micro level. Most of the studies on the saving pattern of rural
people are based on secondary data which sometimes does not prove to be adequate for the study.
Most of the data available does not serve the needs of Ethiopia from a ground-level perspective.
While studies conducted on the saving and income expenditure among rural and urban households
for various expenditure classes, little effort has been made to study the saving pattern related to
the individual’s behavior towards saving within the rural sector. The study will be taken to be on
the pattern of saving habits in the households that provide an important indicator for the economic

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development of the country. This study will also help to define the factors influencing the saving
pattern and to analyze certain constraints in the saving attitude in rural areas.

1.7 Organization of the paper

This paper will have five chapters and chapter one deals with the introductory part which contains
the background, statement of the problem, objectives, basic research questions, significance of the
study, scope and limitation of the study, and the significance of the study. The second chapter will
deal with theoretical and empirical reviews. Chapter three will contain methodology which
contains the description of the study area, type, and source of data, method of data collection and
sampling procedure, and method of data analysis. The fourth chapter will include results and
discussion and the last chapter will deal with the conclusion and recommendation.

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 2. LITERATURE REVIEW
The purpose of the literature review will be to deliver important information on the theoretical and
empirical background of the topic under study. Hence, this chapter provided a review of the
literature on relevant articles related to the study. The chapter contained three main parts. The first
part dealt with concepts and definitions where key terms of the study were discussed. The second
part presented theoretical and empirical review in which theoretical review involved assessing
earlier theoretical based articles whereas empirical review demonstrates findings of relevant past
studies. The third part came up with the basis of the study that was Theoretical and Conceptual
framework, which was drowned from the discussion in the literature review.

2.1. Theoretical Literature Review

2.1. 1. Definition of Saving

Saving is income not spent, or deferred consumption. Methods of saving include putting money
aside in, for example, a deposit account, a pension account, an investment fund, or as cash
(Giordano, 1983). It is a basic instrument in the improvement of household life or in the poverty
alleviation effort as it helps to smooth consumption. It is also usually the entry point for a potential
user in interacting with financial service providers. The saving habit of the households in the study
area will be asked. Hence, due to the low saving habits of households, the vital role of financial
capital seems inadequate. When individuals have saved some amount of money, the performance
of their income becomes improved. More saving money would mean more capital (Cronje, Mark,
(2009).).

Household savings is defined as that part of current income, after the payment of direct taxes,
which is not consumed or transferred for future consumption. Saving includes current
disbursements made in the form of a reduction in household liabilities, such as repayment of loans.
By contrast, any portion of the current expenditure of households not financed by current income
but rather by the use of credit represents an increase in the financial liabilities of individuals and
is treated as negative savings. In addition, household saving includes regular and recurring
employer and employee contributions to pension and insurance funds and the interest earns those

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funds. Saving is also defined in terms of flows in the current account and excludes any capital
gains and losses (Schultz, 2005; Nga, 2007; Cronje, 2009).

There are theoretical models in the literature that explain various variables that affect saving and
asset accumulation (Schultz, 2005; Nga, 2007;). Desired incomes are seen as unable to save
(Schultz, 2004; Nga, 2007;). The assumption in Neoclassical economic theory is that people are
logical beings capable of reacting predictably to changes in incentives. Individual utility is
commonly thought to be determined by consumption, and savings are frequently handled by
resources left over after consumption (Beverly et al., 2003; Cashell, 2009;).

However, these theories suggest that leaving an estate is the motivation behind saving, according
to the Keynesian model. Disposable income is considered to be the primary determinant of
individual savings, and those with low disposable income were initially developed for developed
economies and are unable to explain the economy and the features of households in developing
countries as they have different characteristics (Schultz, 2005; Nga, 2007).

According to Zhu (2004), some of the peculiar features of household savings in developing
countries in general and their rural areas, in particular, are; large household size, agriculture as a
major source of income, and most households living in abject poverty.

Many researchers indicate that many rural households in developing countries, particularly in
Africa, are too poor to save (Robinson, 2001). However, as Manyama, M. M., (2007) stated, the
poor do save even though they do not have complete access to savings facilities in formal financial
institutions. Instead, they use informal institutions for their savings. These include livestock, crop
products, housing materials, farm pieces of equipment, and some other precious metals like
jewelry.

Low saving has been a dominant feature of the Ethiopian Economy. At household level,
irrespective of small size, rural households in Ethiopia do save in many ways, as individuals or in
a group. They usually save in kind mainly in food-grains or in livestock (Dejene, 2006).

Similar study by Baharumshah et al, (2003) argues the existence of positive effects of household
savings on economic growth). These events revealed the relevance of saving and especially its
allocation in the nation economy (Rijckeghem, V. and M. Ucer, (2009). Indeed, saving is very

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important in the development of industrial and financial systems (Attanasio, 1998; Baharumshah
et al., 2003) as well as the only means to accumulate assets in the absence of credit and insurance
markets to households. Although there is controversy regarding the relationship between savings
and economic growth, it is generally agreed that once savings start to rise-perhaps due to increases
in income-they enhance the potential to finance investment, and lead to the creation of more
opportunities in the economy (Attanasio,1998;).

Domestic savings consists of three components, viz., corporate, household, and government
savings. Household savings could be accumulating in real assets or financial assets. Large part of
saving accumulation in developing countries is in the form of real assets (Rehman et al.,2010).
These include livestock, precious metals, or food stocks. However, these real assets less useful for
industrial activities since it does not liquid. The weakness in saving in real assets is important
reason for a household in developing countries to save in financial assets (Deaton, 1989). They
could save in banks or non-bank financial institutions in cash form. In this respect, access to
financial institution that meets liquidity needs is crucial. This is the reason to introduce rural
financial institution such as saving and credit cooperatives that strategic in order to increase
financial savings and loan facilities. Household save for a variety of reasons such as liquidity
constraint or life cycle savings. In developing countries savings are important determinants of
household welfare. On one hand, without savings, households have few other mechanisms to
smooth out unexpected variations in their income, and so, shocks may create some problems of
human capital accumulation at early ages (Attanasio, 1998).

2.2. Empirical Literature

Low savings have been a defining characteristic of the Ethiopian economy, claims Degene (2003).
Gross domestic savings and investment as a percentage of GDP were, on average, 12.4 and 18.5
percent, both extremely low percentages. Rural households in Ethiopia do save at the household
level, whether they are large or small, in a variety of ways. They typically stockpile in kind,
primarily in the form of animals or food grains

. Researches on factors affecting rural households’ savings on micro data drawn from the
developing countries has lagged far behind the pace set in advanced nations. It would appear that
there has been limited hypothesis testing in the developing countries beyond macro formulations

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of the consumption function. Furthermore, very little of the development literature attempts to
isolate the impact of personal saving, since few studies provide meaningful disaggregation (Kelley
and Williamson, 2009). Besides, few studies assess the factors of savings at the individual level
generally due to the lack of data. Turner and Manturuk (2012) examined how individual,
institutional, and structural determinants the decision-making processes that guide households’
savings in New York.

The results showed that individual factors such as obligation to family, upbringing affect
households toward savings and their confidence in their ability to save. Institutional factors such
as incentives, disincentives, and organizational culture shape households’ trust in financial
institutions and their willingness towards participating in savings programs was studied. Issahaku
(2011) identified age composition and assets do not have a major effect on saving. The factors that
make household investment are occupation and expenditure. Contrary to Issahak’s findings,
Rehmanet al. (2010) investigated the determinants of households saving and identified age has
positive. In this research, age has to be negative relationship with rural households saving.

A household study on determinants of saving asserts that three factors were influence household
saving behavior in Africa. One of these was the ability to save which in turn depends on a
household’s disposable income and expenditure. The second was the propensity or willingness to
save as influenced by socio-cultural and economic factors like the family obligation to educate
children. The third one was the opportunity to save and returns on savings. In addition, household
size has a negative effect on household savings suggesting that larger household are more resource
constrained than small ones with disposable income and consequentially a lower level of savings
(Newman et al., 2008; Orebiy`set al., 2005).

2.2.1 Relationship between Saving and Income

The present study empirically examines the relationship between saving, income and consumption
showing a positive relationship between saving, income and consumption. As the income of the
individual increases, consumption increases and simultaneously saving also increases .

Economic studies have shown that income is the primary determinant of consumption and saving.
Rich people save more than poor people, both absolutely and as a percentage of their income. The

9
very poor are unable to save at all. Instead, as long as they can borrow or draw down their wealth,
they tend to save. That is, they tend to spend more than they earn, reducing their accumulated
savings or going deeper into debt. So we can say that there is a deep relationship between
consumption, income, and saving, and they all affect each other, which can be shown with the
equation (Sameroynina, 2005);

C=f(Y)

Y = C + S, where C = consumption.

S=Saving

Y=Income

S=Y-C

Many people don't save as much as they should for retirement (Devaney,et al 2007). The life-cycle
hypothesis (LCH) is an economic theory that focuses on people's spending habits. According to
the life-cycle theory, people plan their spending and saving over a lengthy period of time and want
to spread out their consumption as evenly as possible throughout the course of their lifetimes. The
fundamental premise is that everyone makes the decision to lead stable lives. This suggests that
people generally maintain their consumption levels at around the same levels throughout each
period rather than saving up a lot in one period to spend lavishly in the next.

2.2.2 Saving Patterns of Household and Money Owed to the Households

Understanding how people save in particular, determining whether certain people are more
financially vulnerable as a result of their saving choices, financial preparedness for retirement, and
forecasting their economic well-being after retirement. In recent years, employer pension schemes
have shifted from defined benefits to defined contribution plans, and interest in reforming part of
the Social Security retirement system has increased. Thus, pension plans and Social Security are
becoming or may become more like individual saving. Research on how people save is needed to
help gauge the economic security of future retirees, inform the current debate on Social Security
reform and prevent inequalities in wealth from being perpetuated (Sameroynina ,2005)

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2.2.3 Saving and Money Deposited in Banks

Sometimes people think they are doing finances well when those money-saving behaviors are
really compromising the security of their savings. A budget and regularly depositing money into a
savings account will build up a nice buffer in case you fall on hard times, but doing these things
can also potentially put a big hole in that safety net. Poor is not that relational in depositing in
banks because of less income (Rehman H, Faridi Z, Bashir F, 2010)

2.2.4 Saving Behavior and Household Investments

The investments made by the households in different sectors are subjected to high income and
more savings. The rural households have very less income and high consumption as their
marginal propensity to consume is high and they are subjected to save less which significantly
puts an impact on their investment pattern (Attanasio, 1998). Investments in unincorporated
businesses and farms or rental properties are no where applicable for these communities.

2.2.5 Saving Behavior and Preference for Saving

Rural communities have a very less income which supposes them to save less and even if they
save, they prefer the savings account through which they can have earn a way of transactions any
point of time and they save a very less amount in the financial institutions showing a significant
result of saving (Cashell, B.W, 2009).

2.3 Conceptual Farmwork

Savings fundamentally is about choosing between current and potential consumption. In recent
years, few studies have been presented nationally on this matter using aggregate saving data. But
still this issue is needed to be discussed more at micro level to find policy framework in the
prospect. Keeping in view the importance of households saving in Ethiopia, some conceptual and
empirical evidence from international economy is reviewed based on saving in developing
countries (Kifle, 2012). Gedela (2012) reviewed the determinants of rural households’ savings 21
and the result revealed that the age of the head of the household, sex, income and expenditure are
significantly influencing the rural household saving. He found that expenditure has harshly
affected household savings. Income is the most critical factor of the saving behavior in the entire
study. Then, the researcher developed the following conceptual framework by reviewing diverse
empirical studies. The most important variables expected to affect rural households’ savings in the

11
study area includes; demographic (age, marital status, educational status, sex and family size,
socio-economic (religion of the head of the household, income level of households, livestock
ownership, landholding size of households and distance from market), institutional (physical
distance from financial institutions), variables associated to government (awareness of saving and
advice concerning saving). Creating better way enhanced for achieving means of living for the
beneficiary that found in the town from side-to-side institutional credit, saving, insurance and
generating employment opportunities, education opportunities, nutrition facilities.
Diagrammatically, it can be shown as follow:

.Table 1. table of dependent and independent variables

Independent variable Dependent Variables

Source Compiled by the researcher

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 3. RESEARCH METHDOLGY

3.1 Description of the study area

The study will conduct in Amhara National Regional State; the Northern Gondar zone in a
particular place called Lay Teda kebele. Lay Teda kebele is one of the pre-urban kebeles of Gondar
town administration. It is located 795 km away from Addis Ababa, the capital city of Ethiopia,
145 km to the capital city of Amhara regional state, Bihar Dar and 20.64km from Gondar town. It
is located at about 25 kilometers south of Gondar town. It is located north of Fenter kebele, south
of Tach Teda, west of Azezo Teklehaimanot and east of Mecha kebele. The total populations of
the area are 2450 and from this 1223 are males and 1227 are females respectively. The main
economic activities of the area are mainly crop production and livestock rearing. The area is
categorized under Woyna Dega agro-climatic zone and the altitude of the area is about 1800-2100
meters above sea level. The soil type of the area is red and black soil. The annual temperature of
the area is 25-30 degree Celsius and the annual rainfall is about 1800-2000mm. The area is mostly
known for producing wheat, sorghum, peas, teff, maize, and other crops. The total area of the
kebele is 827 hectares and from these 70 hectares is used for institution and coverage, 30 hectares
are covered by forest and 120 hectare is covered by grazing land. The topography of the area is
15% hill, 50% plain and 35% mountainous. This study will be employed a descriptive research
design with quantitative and qualitative method.

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Source: GIS shape file of Ethiopian administrate map

Figure 1: Sketch of the study area

3.2 Sources and Data Collection Methods

combination of quantitative and qualitative types of research will be used. Quantitative research
will be taken to generally describe the amount of income earned monthly (yearly), the amount of
income to save, and how much to consume from the total amount of income. In a similar manner,
qualitative research will be used to explain in detail why people develop their saving habits. These
studies will have both primary and secondary sources will be employed. The primary source will
be based on data collection through focus group discussion. The secondary data will also be
collected from annual reports, the Internet, and published and unpublished documents.

Different data methods will be employed. These include a questionnaire and an interview. The
questionnaire was prepared in the form of structured and open-ended questions. An interview will
try to be carried out to get detailed information on household saving habits, factors that affect the
saving behavior of households, and level of income. Small groups of persons, both male and female
will select and invite for focused group discussion.

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3.3 Research Design
The study has a Cross-sectional research design involving both qualitative (case study and depth
interview) to discover the understanding motive of desires and quantitative (mainly using survey
questionnaires).

3.4 Type and Source of Data

Data of various types that are relevant to the study's goal will be collected from a variety of
sources. In this study, primary and secondary data sources will both be used. A sample of
respondents will provide the primary data. The secondary data will be gathered through
additional research projects, publications, statistical studies, government records, and various
organizations.

3.5 Sample Size

The size of the sample depends on the precision desires and there is no single rule that can be used
to determine sample size. But the larger sample is much more likely to be representative of the
population. So, in these cases, our total population of the study area is about 2450 from which
1223 are males and 1227 are females headed household. Due to the representativeness of the whole
population, the target population will be minimized to about 100 households. And in the other
word From the total population 100 households will be taken as a target population, because they
all are mixed in farmers, government employees, students, private sectors, etc. the sample size will
be determined using the simplified formula developed by Yemane (1967) at 95% confidence level.
According to this formula, the sample size is obtained to be 80 households at the given significance
levels.

n = N/1+N (e) 2

Where; N = target population

e = significance level

n= sample size

But, because of shortage of time, budget and distance factors, under this study only 65 households
will be taken.

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3.6. Sampling Technique
The subject of this study will via the head of the households, in the study area, which includes both
male and female heads. The sampling technique plays a great role in the accuracy and validity of
the information. The technique that will be selected for the study area is purposive sampling
because of the nearness of the study area to the campus, in order to gather data and other
information relevant to this study. And to avoid biases in sampling, a simple random sampling
technique will be employed. Since the study will be concerned with determining household habits
of saving in the Teda sub-district, the conceptual structure of the study will be descriptive. A cross-
sectional study will be made to investigate the determinants of the household habit of saving by
collecting data from the randomly selected respondents.

Table 2 Sample distribution of Respondents

Study area Teda district

Target of households 100
Sample size selected 80
Source; personal communication

From Table 3.1 Sample Respondent Distribution Teda district 80 out of the 100 households that
were supposed to be sampled. a random sample strategy will be used for the comprehensive
household survey throughout the study region. But 80 houses will first be randomly chosen from
the research region using basic random selection.

3.7 Methods of Data Analysis

In this study, both descriptive and econometric analyses will be used to conduct determinants of
the household habit of saving. An econometric model will be used to identify factors affecting the
saving habit of households for data collected from a cross-section of samples. To describe the
characteristics of households who have saving habits’ descriptive statistics like mean, percentage
and frequency will be employed.

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3.7.1 Econometric Analysis
OLS (ordinary least square) estimate will be utilized in multiple linear regression models to
investigate the factors that influence a family's saving behavior. Finding and understanding
patterns in the influencing elements is a crucial step in econometric analysis. The number of
children in the home, its age, its monthly income, its gender, its major occupation, its marital
status, its level of consumption, and its educational attainment are the most crucial factors that
will decide whether a household will save money.

3.7.2 Analysis of Descriptive Statistics

Descriptive statistics describe the main features of a collection of data quantitatively. It aims to
summarize a data set quantitatively. Descriptive statistics will be used to describe the coefficient
of variation, standard deviation, etc.

It will try to use descriptive statistical analysis simply to describe what is going on in our data
and to present a quantitative description of the households. For descriptive statistical analysis, it
will be used percentage, average, minimum, and maximum values for the quantitative data
numerically.

3.7.3 Inferential Analysis

Inferential statistics, according to Obayelu OA. (2012). allow drawing conclusions from data by
examining the relationships between two or more variables and the ways in which various
independent variables may contribute to the variance in a dependent variable. The study will
employ the following inferential statistical techniques.

3.7.4. Multiple Linear Regression Analysis

Linear regression is a method of estimating or predicting a value on some dependent variable given
the values of one or more independent variables. Like correlations, statistical regression examines
the association or relationship between variables. Unlike correlations, however, the primary
purpose of regression is prediction (Geoffrey M. et al., 2005:224-225). In this study multiple
regressions will be employed. Multiple regression analysis will take into account the inter-
correlations among all variables involved. They added multiple regression analysis, which means
more than one predictor is jointly regressed against the criterion variable. This method is will be
used to determine if the independent variables were explaining the variance in dependent variable.

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3.7.5. Regression Function

The dependent variable (savings) and independent variables will often be the two sets of variables
used in the equation of regressions for this study (age, family size, education, occupation, income,
sex, consumption and marital status,). Regression equations will be used in this study with the
primary goal of improving the study's ability to describe, comprehend, and predict the specified
variables.

3.8. Model Specification

The econometric model specification of the variables is as follows.
Yi= (X1, X2, X3, X4, X5, X6, X 7, X8,)
Y= @+ β1EDU+ β2AGE+ β3MAR_STA+ β4FAM-SI+ β5OCCU+ β6SEX+ β7INC+ β8ONSC

Where: Yi = amount of saving in monthly (yearly)

@ = the constant term, X1-age of the households, X2 -family size, X3 – income , X4,
-gender(sex), X5,_ Primary occupation , X6, -level of education , X7,- marital status ,X8_household
consumption level

3.9 Definitions of Dependent and Independent Variables

Dependent Variable Rural households’ savings status: The dependent variable has a dichotomous
nature measuring rural households’ savings status in formal financial institutions in the year2023.
This is to distinguish or discriminate between those savers and non-savers in the study area. It
takes a value of 1 if the households save in formal financial institutions otherwise 0.

Independent variables: Independent variables in this study were accessed and adapted from
existing literature. The study consider independent variables that comprise; demographic
(education level, sex, age, marital status, family size), socio-economic (religion, landholding size,
livestock ownership and annual income), institutional (distance from financial institutions) and
government related to saving institutions (awareness of saving, advice and motivation.). and they
are measured by 0 or 1 which takes the value of Yes or No and 1,2,3,4,5,or likert scale which is
strongly agree, agree, neutral, disagree, and strongly disagree respectively.

Gender: Quartey and Blankson (2008) in the analysis of the GLSS 4 data observed the following.
First the number of people who did not have savings account was more than those who had. Only

18
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 19 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

Education level (EL): is expressed as literate and illiterate. Education affects saving performance
by influencing the level of saving and the options for asset accumulation available to the
household. Kulikov et al. (2007) found that education as a human wealth promotes rural household
saving. It was expected, therefore, households who are literate have a higher probability of saving
it had positive effect for literate households.

Marital status (MS): is expressed as married and unmarried. Marital status has also been shown
to have an effect on asset accumulation (Grinstein-Weiss et al., 2006). Historically, marriage has
been viewed as a source of financial security continues to be a determining factor for economic
well-being. Pooling resources for a married couple may provide a cushion for them to accumulate
assets without going under in times of crisis. The expected effect of rural household saving on
single households was negative.

Sex (SEX) it is assumed that male for the head of the household is male and female for the other.
Several studies have shown that sex has an effect on asset accumulation. In sub-Sahara Africa,
women own fewer assets than men (LeBeau et al., 2004).In rural SSA, women’s ability to
accumulate assets is governed by family and community norms, which historically have favored
men to the disadvantage of women. Gedela (2012) found that male headed households save more
20 than female headed households. The expected effect of sex on female headed households was
negative.

Age (AGE): it is a continuous variable, defined as the household heads age at the time of the study
measured in years. Rehman et al. (2010) found that age has positive relationship with household
savings. The life-cycle hypothesis suggests that there exists a relationship between age and saving
rates. When the age of the households increases their saving status going decreases. Therefore, the
expected effect of age on rural households saving was negative.

19
Family Size of the household (FS): this is a continuous variable measured by numbers and it refers
to the total number of family members of the household. A household with high number of
dependents in the family have less savings. Rehman et al. (2010) found that family size
significantly and inversely affecting household saving. The expected effect of family size on rural
household saving was negative for households who have large family size.

Religion (REL): this variable is identified as Musilim, Kirstian, wakefata and protestant. Although
the relationship between religion and economic development on the macro-level has been
explored, it is less clear how background of religiosity influences economic attitudes and financial
decision-making on the level of the individual or household in the micro-level. Fentahun (2014)
identifies religion as determinant factors in west Amhara regional state has had its share towards
the impact of saving on households. The result of this study shows religious affiliation effects on
saving behavior and decision to save money or notand compares religiosity in the form of Christian
to Islam believers the results show Christians save more than Islam. Therefore, the expected effect
of religion on rural household saving was negative for Islam religion followers.

Market distance (MD): here it is assumed to capture the effect of walking distance to the main
market center from home measured in kilometers. Better access to roads expands output markets
in addition, from the fact that as farmers locate far from market there is limited access to input and
output markets and market information. Moreover, distance to market leads to higher transaction
cost which reduces the benefits accrue to the households. More importantly, the longer distance
from the market likely to discourage the households from participating in market 36 oriented
production that increase their income and possible encourage to save in financial institutions (Essa
et al., 2012). The expected effect on saving was negative.

Landholding size (LHS): it is the total land size cultivated by the household. It is a continuous
variable and measured in hectare. The larger the cultivated land size the more the households to
save in financial institutions. The expected effect on rural households saving was positive.

Distance from financial institutions (DFI): it is a continuous variable measured in kilometers.

Households near to financial institutions have a location advantage and can contact easily and have
more access to information than those who live more distant locations. Chemonics International
(2007) identified distance remains a major barrier to formal financial saving and other markets in

20
rural areas. As rural households far from formal financial institutions, the expected effect on saving
was negative.

Annual Income (AI): it is a continuous variable and operationalized as the total annual earnings of
a family from sale of agricultural produce, off-farm and non-farm activities. Income level which
shows that when the income level of households increase the saving rate will also increase by some
presents. Abdelkhalek et al. (2009) indicated that income strongly affects the saving level of the
household. The expected effect of this variable on rural household saving was positive.

Livestock ownership (LSO): this refers to the total number of animals possessed by the household
measured in tropical livestock unit (TLU). As the total number of animals in the household
increases, the household would be save more. Degu (2007) shows positive and significant
relationship between households saving and livestock ownership. Therefore, the expected effect
of this variable on rural household saving was positive

3.10. Hypothesis; Is subject to test i.e., to confirmation or rejection on empirical grounds.

Table 3 hypothesis

Determinant of saving continuous categorical Effect of each factor on

household saving habits
income ✓ positively
occupation ➢ positively
Family size ✓ negatively
Marital status ➢ negatively
Sex ➢ negatively
consumption ✓ negatively
age ✓ positively
education ➢ positively

Source; individual prediction

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 4. WORK PLAN AND BUDGETING

4.1. Working plan

Table 4general working schedule

Activities Dec Jan Feb Mar Apr May Jun

Literature ✓
survey
Proposal ✓
writing
Data ✓ ✓
collection
Data entry ✓
Data a ✓
analysis
First draft ✓
project
writing
Final draft ✓
project
writing
Project ✓
presentation
Table 3.5. general working schedule

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4.2. Budget setting
.Table 5 Stationery and consumable expense

Item Unit Unit price Amount required Total price

Paper Packet 500 1 500
Pen Number 20 2 40
Memory card Number 250 1 250
Printing Page 3 50 150
Photocopy Page 2.00 120 240
Fixing Number 10 2 20
Total 1230

Table 6 .Miscellaneous expense

No Item description Total
1 Telephone 200
2 Internet 150
3 Transport 500
4 Sum/total 850

Total = stationary & consumable cost + miscellaneous expense

= 1230 + 850
= 2080 Birr
Contingency (20%) =2080*0.2
= 416 Birr Grand total = ∑total + contingency
2080+416
= 2496 Birr

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