Factors determining household savings in Zambia: A logit regression model from the micro-economic perspective

Although not directly linked in time and space, the low savings in an economy will pose a huge challenge on the growth prospect of the country as both private and public savings remain catalytic to economic growth. The classical and neo-classical growth theories have placed emphasis on the critical role of savings in the economy and indeed the need for high savings cannot be overemphasised. This study sought to examine microeconomic determinants of household savings in Zambia using cross sectional data obtained from the Central Statistics Office 2015 Living Condition Monitoring Survey comprising 12251 households. The study conducted an analysis of factors using a Logistic regression model. The results of the study found that income and employment status of the households had a positive and significant influence on the probability of a household to save. On the other hand, household size, age and region (living in urban areas) negatively influenced household savings and was significant at all critical levels.

The marginal effects which measures the magnitude of the impact of the independent variable on the independent variable was analyzed and it was found that for income ceteris paribus, a 1% increase in income was found to increase the probability of a household to save by 0.01percentage point while an improvement in employment of household heads increases the probability of a household to save by5.6 percentage point ceteris paribus. Furthermore, ceteris paribus, an additional year of the household head age reduces the likelihood to save by 1.4 percentage point. On the basis of household size, the study found that ceteris paribus, adding an extra person to a given household reduces the likelihood of a household to save by 1.14 percentage point. For the region variable, the study used rural region as a benchmark region to distinguish between urban and rural household propensity to save. It was found that households that were located in urban areas were 9.8% less likely to save compared to households located in rural areas. Given the findings above, it was concluded that low levels of savings in Zambia are attributed to; low household incomes, overgrowing informal sector and overpopulated households. It was recommended that the government should increase its funding towards economic empowerment to boost job creation which would enhance household income and reduce over dependency of household members.