Determinants of Households Saving Habit in Urban Oromia: Evidence from Asella Town

Abstract

Low level of household saving habit and its determinants demand public attentions for effective policy interventions. This study was conducted to investigate determinants of household saving in urban Oromia with specific reference to Assela Town. To this end, primary data was collected from household using multistage sampling. First, based on strata of whole peripheries), out of eight kebeles were selected purposively. Then, using simple random sampling household were proportionately selected from sex of household head -based strata formed for selected kebele. Accordingly, 394 households of which 286(72.6%) and 108 (27.4%) were male and female respectively were selected. 240 (60.9%) of the respondents were having saving habit and the other were not. Both descriptive and econometric methods were employed to analyze data. Binary logit model was utilized to identify determinants of households saving behavior. Three interrelated models (log odds, odds ratio, and predicted probability) were estimated. The results of the descriptive analyses shows that 61% of sample households practiced saving and the common challenges were low income, preference of investment in kind and other business, high expenditure. Besides, econometric analyses shows that 15 of 17 stated variables were found to be statistically significant in affecting probability of household saving. Specifically, average income has positive, but age and dependency ratio were found to be negative effect on probability of household saving. Furthermore, being married, widowed, or divorced, were higher probability of saving than the single one. Besides, improvements in level of education to certificate, diploma or degree and above have higher probability than illiterate once. Being self-employed household were more savers than government and private sector employee. Being male, alcohol user, being non house owner have lower tendency of household saving than their counterpart. The study recommended that concerned bodies should design capacity building program through creating awareness on saving, financial planning and budgeting.