An Impact of Socio-Economic Factors on Saving Behaviour of Individuals

 

Ms. Gagneet K. Bhatia¹, Dr. Meenakshi Tyagi²*

¹Research Scholar, Mewar University, Chittorgarh, Rajasthan

²Assistant Professor-MBA, KIET Group of Institutions, Ghaziabad UP

                         

ABSTRACT:

Saving is a very important component which is responsible for meeting or helps in preventing any emergency met by the individuals or the households or any other users, as well as  essential for capital formation of any Economy. Savings is defined as the amount of money which we keep aside from our income. Saving is a significant macroeconomic variable which is  studied under the economic scenario of   any individual as well as household. In a developing country like India, where the income standard is almost uncertain which leads to more consumption and less Saving  is a Major problem of our economy.  If saving is low, then the investment will also be low resulting in low capital formation. In this paper an attempt is made to determine the Socio-Economic factors which affect the saving pattern of People in Delhi during Inflation.  For analyzing the effect a questionnaire was prepared to study the impact of income, family Size etc. The sample selected involved 50 Respondents. Regression Analysis was used to analyze the rating given by the respondents. Findings revealed that people earning  low income have less savings because major part of their income is contributed in fulfilling their basic needs.

 

 

 

INTRODUCTION:

Saving is defined as that portion of Income which is not spent on current Consumption. Saving is being regarded as an important input variable in order to promote long run growth of an economy. Saving is a key vehicle that builds an economic connection among the past, the present and the future of a country. Total savings are the part of savings which people save from their present Income. Savings are done for Future transaction; Precautionary and Speculative motive in order to fulfill needs, safeguard ourselves from uncertainty and earn profit from the fluctuations.

 

It is an important variable in Economic Growth and driver of capital formation. For a country to attain the desired level of growth and development there is the need for adequate capital formation, which in turn, depends on the level of savings in the economy. Rate of savings depends upon various determinants and patterns of saving. The determinants and patterns of saving differ from rural to urban region. In rural areas, the marginal propensity to consume is more rather than the marginal propensity to save which seems to be vice-versa in urban areas where the marginal propensity to save is more than that of the marginal propensity to consume.

 

Saving is the major macroeconomic variable through which an economy can procure potential investment and can accelerates its economic growth. National savings are collected through the private and public savings, while private saving contains household saving as major part. By analyzing the income of individuals between consumption and saving which is tough task due to the several factors takes accountable to them vary from region to region, from time to time and one community to another.

 

This is a study of determinants of savings of selected region of Delhi. With the help of this study we will try to find out the Socio economic factors affecting saving pattern of the East Delhi Region.

 

OBJECTIVES OF THE STUDY:

To examine the effects of Some Socioeconomic factors such as Income, Age, Level of Education, size of family on one’s saving patterns.

 

a)     Research Question?:

Find out the effects of socio economic factors that affect individuals saving patterns.

 

b)     Research Hypothesis:

H₀₁: There is no relationship between Savings Pattern and Age of the respondents.

H₀₂: There is no relationship between Saving pattern and Income of the respondents

H₀₃: There is no relationship between Saving pattern and Education level of the Respondent.

H₀₄: There is no relationship between saving patterns and Dependants of the Respondents.

 

REVIEW OF LITERATURE:

Kuznets (1960)"~, in his comprehensive cross sectional study of the relationship between saving and per capita income for two groups of countries comparing 56 and 14 countries has indicated a tendency for high per capita income countries to have higher saving ratios. However, his study failed to examine the formulation of a saving function related to per capita output as the single independent variable. He has also found that saving cannot increase indefinitely with income.

 

Leff (1969) while studying the influence of demographic variables on saving has found substantial evidences to argue that age structure, as expressed in the dependency burden, plays a significant role in the determination of saving ratio. He found that dependency ratio has a strong negative effect on saving. For him, while large income differences are associated with appreciable differences in saving rates, the effects of higher income appears to be considerably reduced when dependency variables are included in the analysis.

 

Gupta (1970) using annual time series data from India analyzed the determinants of saving. He found that permanent income hypothesis is a better fit in the urban areas in India where as in the rural area saving behaviour is more in accordance with the absolute income hypothesis. He found that marginal propensity to save is an increasing function of income at lower level of development.

 

Repetto and Shah, (1975) studied the demographic and other influences on long term saving behaviour in India. The data for the study was collected from surveys conducted in the Kaira district of Maharashtra in 1930 and 1965. It was found in the study that large family size had a negative effect on long term household saving rate. The study revealed that sons in rural India served as substitute assets in the families and fulfilled some of the demand for wealth and that the long term saving rate responds positively to a higher rate of return on saving and positively to higher level of permanent income.

 

Lahiri (1989) has conducted a study to examine the determinants of saving. He based his empirical studies on time series for individual countries. He found that the rate of growth of personal disposable income is an important determinant of private saving of all the countries in his sample of Asian countries. He inferred the age dependency ratio, as a significant determinant of private savings. He found that a one percentage increase in dependency ratio reduces the long run average of propensity to save APS by 1.6 percentage points.

 

Buragohain (2009) in his study explained the trend of savings on household sector savings and the major determinants of household sector savings based on fundamental theory. The time series data consisting of four elements corresponding to (a) seasonal fluctuations, (b) cyclical variations, (c) systematic trend and (d) residual. In an annual time series, seasonal fluctuations are automatically eliminated in the aggregating/ averaging of weekly/monthly/quarterly income, consumption and savings. Three or five yearly moving averages of annual values eliminated the transitory component corresponding to short-run cyclical element, leaving only trend and residual components of the series has used as the methodology. In this study an attempt is made to test similar hypotheses based on fundamental theories of savings and investment and to identify some variables which by intervention can increase savings and investment in India.  

 

Rehmanetal.(2010)studied the determinants of households saving in Multan district of Pakistan.   For this 293 respondents data was drawn through field survey in 2009-2010 by adopting stratified random sampling technique. Questions were asked from heads of family regarding their Educational level, No. of dependents, age Structure, Region of residence, assets owned, income Level etc. Sample contained information about rural and urban household’s people. To observe households saving behavior in Pakistan especially in Multan district, Multivariate regression model was used. The study analyzed the determinants of household savings based on data collected from Multan district through stratified random sampling technique in 2009-2010. They have found that their study supported life cycle hypothesis. Age had positive relationship and square of age was negatively related to household savings. It was found in te study that Education level of the Head of the family expenditures on children, size of family, liabilities, marital status etc were significantly and inversely affecting household savings.

 

Bakshi et.al (2012) demonstrated that household incomes surveys showing no reliable large-scale sources of data on household incomes. A methodological framework has been developed for the estimation of rural household incomes of India. Income distribution based on findings from eight village surveys is conducted using the approach outlined. The two main findings from the study were that, (a) household incomes were underreported in rural areas, and (b) household incomes were lower than the aggregate of consumption and savings.  

 

METHODOLGY:

a)     Sources of Data :

To collect data both sources Primary and secondary have been used. Primary data were collected through Questionnaire and Secondary data have been obtained from journals, websites and published research papers, Internet etc.

b)     Population of the Study:

The population consisted of 50 respondents.

 

c)      Method of Data Collection:

Data for the study were collected through Structured Questionnaire which was prepared by the Researcher.

 

d)     Sample Size and Sampling Technique:

Multi stage sampling technique was used for the study, samples were obtained from the people of East Delhi.

 

e)      Method of data analysis:

The Data used for the study was analyzed using both Inferential and descriptive statistics Regression analysis is used in the study to test the hypothesis and to find out the impact of socio economic factors on saving patterns.

 

 

Y=a+b1x1+b2x2+b3x3+b4x4+b5x5+b6x6+b7x7+b8x8+U

 

Where Y=Savings, X1=AGE, X2=SEX, X3=Level of Employment, X4=size of Income, X5=Level of Education, X6=Dependepents, X7=Family Income, U=Random Error term b1-b6=Regression Coefficient.

 

Table 1: Age Group

 

Table 2: Sex Ratio

 

Table3: Education Level

 

Table 4: Family size

Table 5: EmploymentStatus

 

The above Tables Shows that most (32%) of the respondents were within the middle age (25-30 years). The middle age is the prime of achievement and has less financial responsibility and number of dependents. Modigliani (1986) found that people in the middle age between 30 and 49 years save more money compared to the early and/or old age. About 54% of the respondents were male while 46% were females. This implies that most of them have family responsibilities. Analysis of educational level shows that a good number of the respondents (60%) were Post graduates while most of them (32%) were graduates. Education helps one to understand the essence of saving and investing money. Most of the respondents had at least three people in their families. This shows high dependency ratio. Family size can influence individual savings. All things being equal, the larger the family size, the less the amount of money one can save and vice versa. Iheanacho, (1995) supports this by averring that as the size of the family increases there are more mouths that consume, making it difficult to save. The findings on employment alevel indicate that majority (54%) of the respondents public employees.

 

Correlation Analysis of Socio Economic Factors Affecting Savings:

TABLE: 6 Correlations Between savings and Dependents

		Savings	Depen
Savings	Pearson Correlation	1	.021
	Sig. (2-tailed)		.886
	N	49	49
Depen	Pearson Correlation	.021	1
	Sig. (2-tailed)	.886
	N	49	50

Note: Null hypothesis is rejected at 5% level of significance.

 

Analysis of the result in the above table shows that Size of the Family has a significant impact on savings at 5% level of significance. The table shows that Pearson correlation is found to be 0.021 and significance level is found to be 0.886.this implies that the more number of people a respondent has in his family the more is his responsibility towards the family therefore he is able to save less.

 

Analysis of the result in the above table shows that Age has significant impact on savings at 5% level of significance. The table shows that Pearson correlation is found to be 0 .085 and significance level is found to be 0.556. This implies that as the age increases the respondent becomes more productive and he has more tendency to save.

Correlation of Age with savings:

TABLE:7 Descriptive Statistics

	Mean	Std. Deviation	N
Age	2.78	1.920	50
Savings	2.28	.882	50

 

TABLE:7.1

		Age	Savings
Age	Pearson Correlation	1	.085
	Sig. (2-tailed)		.556
	N	50	50
Savings	Pearson Correlation	.085	1
	Sig. (2-tailed)	.556
	N	50	50

Note:          Null hypothesis is rejected at 5% level of significance.

 

Correlation of Income with Savings

TABLE:8 Descriptive Statistics

	Mean	Std. Deviation	N
Savings	2.28	.882	50
Mon Inc	1.72	.757	50

Note:          Null hypothesis is rejected at 5% level of significance.

 

TABLE:8.1

		Savings	Mon Inc
Savings	Pearson Correlation	1	.181
	Sig. (2-tailed)		.208
	N	50	50
Mon Inc	Pearson Correlation	.181	1
	Sig. (2-tailed)	.208
	N	50	50

Note:          Null hypothesis is rejected at 5% level of significance.

 

Analysis of the result in the above table shows that monthly income has a significant impact on savings at 5% level of significance. The table shows that Pearson correlation is found to be 0.181 and significance level is found to be 0.208 this indicates that more income more savings.

 

Correlation of Education Level With Savings:

TABLE:9 Descriptive Statistics

 

TABLE:9.1

		Savings	Edu lev
Savings	Pearson Correlation	1	.098
	Sig. (2-tailed)		.497
	N	50	50
Edu lev	Pearson Correlation	.098	1
	Sig. (2-tailed)	.497
	N	50	50

Note:          Null hypothesis is rejected at 5% level of significance.

 

Analysis of the result in the above table shows that Education level has less significant impact on savings at 5% level of significance. The table shows that Pearson correlation is found to be 0.098 and significance level is found to be .497

 

Correlation of Sex With Savings:

TABLE:10 Descriptive Statistics

 

TABLE:10.1 Correlations

		Savings	Sex
Savings	Pearson Correlation	1	.118
	Sig. (2-tailed)		.416
	N	50	50
Sex	Pearson Correlation	.118	1
	Sig. (2-tailed)	.416
	N	50	50

Note:          Null hypothesis is rejected at 5% level of significance.

 

Analysis of the result in the above table shows that Sex ratio has a significant impact on savings at 5% level of significance. The table shows that Pearson correlation is found to be 0 .118and significance level is found to be 0 .416. female saves more than male.

 

DISCUSSION OF FINDINGS:

The result shows that there is a significant positive relationship between the age and savings as the age increases the more an individual saves. Number of dependants and saving pattern which means that the number of dependents strongly influences the amount an individual saves. It means that if an Individual has smaller family size he is able to save more as compared to one who has large family due to having higher consumption rate. Monthly income is a very crucial determinant to affect saving pattern it means that higher income favors to high savings and vice versa. Though education level and gender also affect the patterns of saving but result shows that it was not significant.

 

CONCLUSION:

Since India is a developing economy which need adequate capital formation to develop number of areas Capital formation depends on the level of savings in the economy higher savings result in higher capital formation. Despite the fact that capital formation is essential for growth and development, the situation in India is such that the level of savings is still poor due to low income, large family size or more number of dependents, joint family system and young working population. There is a requirement of direct government interference to promote saving habits in people. Government should make attractive interest rate policy which would be more vibrant in rekindling savings and to control inflation in the economy.

 

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