Household Saving Behaviour in Kenya: A Discrete Choice Approach

Abstract

Domestic saving in developing countries remains relatively low compared to the developed World despite its huge significance as a growth and investment stimulant. Recent evidence from Word Bank Development Indicators reveal a decline in the Gross Domestic Savings as a percentage of GDP from 9 percent in 2008 to 5.32 percent in 2018. Kenya’s 2019 FinAccess household survey affirms that households account for a sizeable share of the gross national savings. Although 55 percent of the total adult population hold atleast one formal saving account, gender and geographical disparities in formal saving persist averaging 10 percent and 23 percent, respectively. Viewed against the backdrop of low saving rates and the growing need to enhance saving mobilization to finance Kenya’s overall investment needs, this study utilized binary logit and multinomial probit to model household saving behaviour. The study established that both socioeconomic and household demographic characteristics shape household saving behaviour in Kenya. In particular, uptake of formal saving rises with the level of urbanization and formality of employment but decline with family size. The study recommends investment in financial education and financial literacy programs and promotion of economic activities to boost savings.

Keywords: Discrete choice; Saving; Household

JEL Codes: G21, C35, D11

DOI: 10.7176/JESD/11-4-10

Publication date: February 29^th 2020