Factors influencing the savings of the heads of households in rural areas in Uganda

Abstract

Saving is an important macroeconomic variable to be studied under the purview of the economic arena on an individual as well as household basis. In a country like Uganda, the income standard is almost uncertain and leads to more consumption rather than saving which has now been a central problem. If the saving is low, then the investment will also be low leading to low capital formation. The present study analyzes the factors influencing the savings of the head of households in rural areas of Uganda. The study used the 2018 Finscope data which covered a total of 2486 households across all districts in Uganda, both rural and urban. For the purposes of this project a sample of 578 households was considered. The analysis is made at four stages. At preliminary stage, univariate stage (descriptive statistics), bivariate stage and multivariate analysis which presents the determinants of households’ saving using a binary logit model. The results show that the factors that significantly increased the odds of consistent saving were; goat, sheep, and pig farming (1.688029) compared to cattle farming, (2.486543) with every unit increase in disposable income, respondents that save with VSLA (489,73%) compared to bank, and education level i.e., respondents that completed some primary (not P7) (47.75%), completed some secondary (not S6) (17.82%) and completed P7 (16.78%) compared to never went to school. However, contrary to the general belief, no systematic relationship is found between savings and the marital status, gender, and age of the household head. It is found, however, that saving increases with age but tends to decline when the age crosses a certain limit - a finding consistent with the Life Cycle Hypothesis. The researcher therefore concluded that the increase in the financial institutions like banks, and other VSLA provided an opportunity to the rural people to save more and respondents who got involved in goats, sheep, and pig farming were more likely to save than those that didn’t. Furthermore, the study finds that most of the rural households have low educational status which is resulting in less awareness of the people towards the benefits of saving. In addition, those who adopted the digital technological use such as; access to a mobile phone, access to internet, owning a sim card, and owning a mobile phone appear to have a higher saving rate than those who do not adopt. He further recommends that the government and concerned parties should support more for the decision to save by facilitating and undertaking training on saving options, conducting regular review and monitoring to develop a clear policy on the importance of savings specifically for households on habit of regular savings.