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Sociological Determinants of Saving Behavior in Kenya

What are the sociological and psychological factors that encourage and discourage people from saving money in Kenyan Communities?

We all need savings for various things in our lives. Education, medical care, building a house, emergencies, all of these expenses require individuals to have savings in the bank. Savings allow people to afford certain things without feeling the pinch in their finances or getting into debt. For example, people can easily afford their child’s college tuition, or a luxury trip with friends by saving small amounts over a period. Barriers to saving can come from psychological or sociological factors.

Personal Accountability

Unfortunately, for some people saving is the most difficult thing to do, and I don’t blame them. It takes a lot of self-discipline to put aside money and not touch it unless it’s for what it was purposed for. One of the main reasons people find it hard to save, is because they don’t have a strategy that works for them. They often find that each time they try saving, they end up using the money.

There is always a temptation that arises around the time folks want to start saving. As a result, they tell themselves, “it is okay, I will start next week or next month,” but that week or month never comes. One tip is to have an accountability partner to make sure you have no cheat days. That way, if you do slip up, you have to pay the price. Have an accountability partner and promise your accountability partner something like free meals every time you slip and vice versa if they slip. It will motivate you to want to win the challenge.

Structural Barriers to Saving

The responsible factors for low savings are due to barriers of financial institutions, financial illiteracy, income of the people and lack of trust of the financial institutions. Poor people are worthy of savings and are saving, particularly if financial institution barriers are removed and made more inclusive so that poor people themselves try to come out from the problem of poverty.

I have worked with Urban underprivileged population groups in Mukuru slums in Nairobi for more than 3 years and from my analysis this underprivileged population know the saving behavior among them but financial institution barriers hinder them from saving with them and the financial institutions are always far from them.

There are 22,000 savings and credit cooperative societies (SACCOs) and 28 domestic and foreign banks with branches. All these financial institutions do not seem to be friendly to the poor people in the slums. It is only SHOFCO SACCO that is unique in its services and availability. SHOFCO SACCO has its offices in all the slums in which it is serving its members and members save a minimum of ksh 500 per month and can access loans at an interest of 1% on reducing balance.

Offices for SHOFCO SACCO are also close to members making members to visit the office any time to access their funds and this has instilled trust among SHOFCO SACCO members.

Sociological Determinants of Saving Behavior among Households

Social stratification theories refer distribution of power in societies. The divisions in society on the bases of economic conditioning of the people which forms different groups in the societies which are classes and these classes are further divided on the bases of income, caste, religion and economic status. Both class and social stratification are the deciding factors which are affecting the saving behavior among low income households.

Individuals and households from low income families are also facing the problem of lack of awareness about services where they could save are use their assets to have positive returns. Social stratification theory is of the suggests that inequalities in societies are due to nature of access of institutional services and resources and those institutions who are providing these services on the name of poor without benefiting the poor.

But there is hope that class and social stratification are the two powerful determinants which could shape the savings and asset accumulation patterns among the poor households. Demands of social network members have made it difficult for family members to save and accumulate their assets.

Effects of credit availability in Kenya

In Kenya improvement in credit availability has decreased savings among people in Kenya especially low income families and those living in slums. Mostly poor people are using credit for consumption purposes rather than for income generating purposes. Low income people in developing countries mostly are saving in informal sources which are less secure and safe than formal saving account sources. maximum use of formal institutions is by educated and literate people in developing countries formal institutions impede savings by the low income earners because of illiteracy and low education.

The Nature of Financial Requirements

Poor people need all types of financial services such as savings, credit, insurance, pension and money transfer as well-off sections need. In my opinion, intensity of requirement is more severe for poor than the well-off. However, the nature and pattern of requirement of the poor is very much different to well off which has never been tried to understand by our formal financial institutions. Requirement of the poor is very much associated with their flow of income and expenditure, which is very much volatile, frequent and small.

Generally, the poor are considered that they do not have income to save. But this is not true. Whatever little bit of income they have, they always try to save some part of it for their emergencies

Economic, Sociological, and Psychological Factors of the Saving Behavior

Research has shown that poor people living in developing countries like Kenya are saving less and little is known about the responsible factors which influence savings of these poor urban groups.

There is insufficient research on comprehensive approach to understand the multiple factors that affect savings behavior. There is a need for interdisciplinary research that recognizes that saving is an economic decision made within an existing social context, influenced by life-cycle demands and the psychological characteristics of the saver.

In developing countries and low income families, most studies that aim to identify determinants of savings ignore the sociological and psychological factors of household saving behavior such as financial socialization and self-efficacy. Understanding household saving in a developing country such as Kenya is particularly useful, since developing countries need to create the funds necessary for investment and to mobilize public and private saving for speedy development

Several disciplines have approached the study of savings behavior through their respective perspectives. Economists tend to focus on observed behaviors, ignoring internal motivations for savings. Sociological concepts have been used in recent studies to examine parental and peer influence.

Life cycle and saving

Individuals spread their life time consumption over their lives by accumulating saving during earning years and maintaining consumption levels during retirement. Those who place high value on the present will consume more today than individuals who discount the future less heavily. The theory states that as one advances in one’s career, income has a tendency to rise and then eventually fall in retirement.

This theory would also suggest that saving is a function of age, as income is expected to rise with age and then eventually decline. The life-cycle pattern suggested that the younger and older age groups tended to have negative savings, while the middle-aged groups would have positive savings. Households at different life-cycle stages, with different demographic and economic characteristics, should be motivated to save or not to save in accordance with their needs and financial plans.

Even though the economic perspective addresses saving behavior it rarely accounts for the reasons why low savings rates are common amongst individuals.

Planned Behavior

A person’s intentions are the motivating force for a specific behavior and that intentions could be applied to the factors regarding the behavior (e.g., the expected duration of the behavior, what effort the behavior requires, and how planning and desire are a factor.

Social Cognitive

Observation of others interacts with one’s own behavior and one’s own cognitive processes to influence that person’s behavior. Socialization, the process by which individuals learn about values and norms, related to saving behavior might be quite different for individuals if they did not discuss or observe saving behavior in their families or by peers.

Sociological and Psychological characteristics influence an individual’s saving behavior based on lifecycle stage, age, education level, marital status, income or household size which themselves also influence savings behavior.

Sociological and Psychological Factors

There is a close relationship between financial socialization, the processes in which we learn about money, and financial behaviors. Reasons for the interest in financial socialization include a focus on life styles financed by debt and the decline in personal savings. Parents are considered the most influential agents of socialization in their children’s lives.

Socialization opportunities are measured by discussions with parents, utilization of multiple information sources, and modeling by parents show that financial socialization has a significant effect, beyond adolescent or college years, on adults’ financial management behavior. Higher levels of parental warmth are positively associated with children’s saving for future schooling.

Parent–child interactions about money are also associated with child financial practices. Childhood financial socialization positively affects the financial behaviors of young adults including savings and long term planning. Additionally, savings account ownership in childhood was positively associated with managing one’s own money as a transitioning adult.

Psychological factors in saving, such as fear of economic uncertainty and pessimism about the economy for instance, one motivation is the idea of precautionary saving, where households’ uncertainty about their economic future motivates them to put funds aside in the event of a downturn in their economic conditions. investigated the importance of psychological disposition in predicting saving behavior.

Participants who had an orientation toward the future are more likely to continue building assets through saving. self-efficacy, financial risk tolerance, impulsivity, money attitudes, planning horizon, perceived barriers to saving, and perceived subjective norms were selected to represent psychological motivation for saving.

Economic Factors

Economic factors associated with life-cycle stage, and access to resources influence saving behavior, both directly and indirectly. These factors include income, age, education, marital status, employment status, household size, and home ownership. Saving increased with household income, age of the household head, and education. People with higher incomes were more likely to engage in responsible financial management. A household’s ability to save was a function of how much they earned and how much they spent.

Therefore, differences in the rate of saving among households varied across the distribution of income. The life cycle hypothesis predicts that, in order to achieve a smooth consumption path over their lifetime, households will accumulate debt when young and then save in middle age to both repay the debt and fund consumption in retirement. household savings would increase to a certain point and then decline with age.

There is a positive relationship between education levels and savings. Marital status is an influential predictor of saving behavior, Married and single people have differed in their savings behaviors and investment decisions. The saving decisions of married people is made at the household level and not as two individuals, Savings rates were higher for married people with no children and lower for households with children. accounts.

However, no systematic relationship was found between savings and the employment status and occupation of the household head to represent the use of financial knowledge through a combination of four financial management skills: spending less than you make, having a written spending plan, monitoring one’s spending plan, and having written goals. All of these skills are important elements of establishing a savings plan.

Perceived Barriers to Saving

For many low-income families, there is more than one issue complicating savings; for example, having no surplus income or lacking access to financial institutions. Some people may be unbanked or otherwise not able to fully utilize mainstream financial institutions including saving accounts. These barriers to savings and accessing financial institutions can present real or perceived market frictions to families’ saving decisions.

Even though people with more income were also likely to save more, perceived barriers, like perceived insufficient income, do limit saving behavior. Perceived barriers to saving were negatively associated with saving intention and saving behavior, the fewer barriers participants perceived, the stronger the intention and the more barriers participants perceived, the less saving behavior was reported.

While many studies have focused on the determinants of saving behavior, few studies have recognized that saving behavior is complex enough to often require multiple approaches to better understand it. There is a need for structural functional theory in understanding economic, sociological, and psychological factors of saving behavior in diverse members of communities. These factors are important predictors of household saving behavior.

My experience of working with Mukuru slum community through socio-economic empowerment and cultivating a saving culture among themselves using sociological knowledge.

“I have tried to work with a budget to control my spending so that I can save but it never works out. At the beginning of every year I have resolutions, made the sacrifice for a few months but then I eventually find something to spend the money on like an emergency, household item etc. Please help.” this is just one of the responses I get when training in the Mukuru slum Community in Nairobi Kenya.

This is one of the most common dilemmas I come across when training slum dwellers of mukuru in Nairobi, Kenya. How to save? Many of them want to save but they are unable. One major problem in this generation of ours is that most people are spenders.

If you desire to know how to save money, this is always my advice to those people I train about saving.

Build the attitude first, not the bank account.

I know you want to save money so that you may have a certain amount of money to buy certain things, but you see, cultivating a saving habit is like other habits. You may have to start small most especially when you earn very little income. Focus on building the habit first. Most people usually think, “I am earning only Ksh. 16,000 per month. I have a wife and four children. How do you want me to save money with this little income?”

The problem with such people is, when they start earning Ksh. 30,000, they will still not save money and when they start earning Ksh. 50,000, they will still not keep any money because they lack a saving habit. Saving habit is like a giving habit. When you have Ksh. 1,000 and you cannot give Ksh.10 to a friend in need, who told you that you will be able to give Ksh.50 when you have Ksh. 5,000?

Now even if your income is small, start cultivating a saving habit. Don’t look at the amount you are keeping now. That`s not what is important. The number most important thing to look at is the habit. Make sure you are saving money regularly no matter how small. What will happen is that, very soon, you will love keeping money so much that you will be addicted to it, when you get to this point, you don`t need anybody to inspire you to save more percentage of your income.

Get the picture of what you will have to do with the saved money.

Human being do things either to earn pleasure or to avoid pain. The only two reasons behind every of our action is either to get some pleasure or to avoid some pain. Why do people buy cars with borrowed money even when it may be stupid to do so? Because they derive some pleasure driving a car. Whenever the picture of what you want to do with the saved money gives you more pleasure than what you can get from spending your money now, you will naturally know how to save money.

Differentiate between wants and needs.

More than 50% of things we buy are wants… we don`t actually NEED them in the first place, we only want them because we see other people using or having them. When you watch ladies so closely, you will see them looking at other ladies as they walk on the street. Right on their mind is communication like, “That top is beautiful on that lady, I should buy one like it”, “and this skirt is smart on this lady. It makes more men to look at her. I will buy one like it”.

Though these ladies have more beautiful clothes at home, you will still see them buying more because they see those fashions or styles on other ladies. That is satisfying your want, not need.

Maresi Isaiah

Maresi Isaiah holds a B.A. in Sociology from Moi University, Kenya. He is a community development professional partnering with grassroot community stakeholders to find sustainable community owned solutions to global poverty and social inequalities. He champions for equality, diversity and inclusion for a fair and a just society. He advocates for community first solutions. He is motivated by volunteering and doing good to the community and it is in his passion to serve the community wholeheartedly to positively impact their lives. He believes that knowledge is useless if you don’t put it into action and that what he does to himself will die with him but whatever he does to others lives and is immortal.