Individual and Institutional Determinants of Saving and Asset Building In Masindi, Uganda: Evidence From AssetsAfrica

Background and Purpose: Most of the studies on determinants of household saving have focused on middle- to upper-income families. Few empirical studies have investigated saving determinants among low-income individuals and households, though primarily in the United States (Han & Sherraden, 2009; Curley, Ssewamala, & Sherraden, 2009). Although research has shown that poor people in Sub-Saharan Africa (SSA), including those living in rural areas save (Collins, Morduch, Rutherford, & Ruthven, 2009; Ansong & Chowa, 2010; Chowa & Sherraden, 2009), little is known about the factors that influence saving and asset accumulation among this population. Evidence from rural parts of Nakuru, Kenya suggests that occupation, income, age, transport costs, and credit access influenced saving among farmers, entrepreneurs, and teachers (Kibet, Mutai, Ouma, Ouma, & Owuor, 2009) However, questions still remain if other factors aside from economic variables influence saving in rural SSA. Using three theoretical perspectives on saving and asset accumulation – individual (economic and psychology), environmental (social class), and institutional, this study examines the broader determinants of saving and asset accumulation among low-income individuals in rural Uganda.

Method: This study used data from AssetsAfrica, a saving and asset-building program implemented in Masindi, Uganda between 2004 and 2008. Total savings data of 203 individuals assigned to the intervention group obtained at Wave II were used as the outcome variable. Multiple imputations accounted for missing data. Hierarchical regression modeling was used to assess the importance of a set of predictor variables based on the three theoretical frameworks. Partial F test was conducted to determine to what extent each theoretical perspective explains saving in an asset-building program.

Results: Results of the hierarchical regression analysis suggest that compared with the individual and environmental/structural perspective, institutional features explain a large part of the variance in saving outcome measured by the total amount of savings at the end of the program. Controlling for the individual and environmental/structural perspectives, the institutional perspective offers significant additional explanation (incremental R2= 0.332) of the saving outcome. Aside from institutional factors (saving incentives and expectations), education level, type of work (formal vs. self-employment) and number of children in the household have significant impact on the total amount of savings among participants in AssetsAfrica.

Conclusion and Implications: The findings of this study suggest that institutional structures encouraging low-income individuals to save may contribute to a poverty reduction policy that shifts from just income supplementation to more inclusive wealth promotion policy. This policy may assist people in creating their own pathways out of poverty. This intervention included incentives and structures for saving, financial education, and asset-specific training. The intervention also addressed barriers to saving, including lack of proximity to financial institutions, high transaction costs, and intimidation. Given the economic and social challenges people face in SSA, particularly those living in rural areas, this study showed that poor people can and do save, particularly when barriers to saving are removed.