Determinants of Personal Savings in Ghana: A Case of the Cape Coast Metropolis

Abstract

The critical role personal savings play in the development of any economy cannot be underestimated. Unfortunately, personal savings which forms the fundamentals of national savings has been particularly low in Ghana. The objective of the study was therefore to investigate the factors that determine personal savings in Ghana. A cross sectional data from 250 individual household members in the Cape Coast Metropolis in the Central Region of Ghana was collected and analysed using econometric techniques. The estimation technique used was the instrumental variable (IV) method. The result of the study showed a significant positive relationship between personal savings and disposable income; personal savings and financial literacy; and personal savings and marital status. A statistically significant negative relationship was also found between personal savings and personal assets; personal savings and loan commitments. It was concluded that indeed the level of personal savings is low and attributable to low income levels, low financial literacy and high levels of indebtedness. Consequently, the study recommended that banks should continue to screen, and offer technical advice to loan applicants to help reduce high indebtedness. It was also recommended that the government and financial institutions must also put in place financial literacy programmes for Ghanaians. The study further recommended that the Central Bank of Ghana should ensure that banks and loan companies reduce high borrowing rates to reduce individual interest expenses.

Keywords: personal savings, financial literacy, instrumental variable, assets, disposable income, permanent income hypothesis, Cape Coast, Ghana