A PROJECT REPORT ON

“SAVINGS HABIT OF RURAL HOUSEHOLD: WITH SPECIAL

REFERENCE TO UZIRARCHAR G.P. BARPETA (ASSAM)”

SUBMITTED TO GAUHATI UNIVERSITY

IN PARTIAL FULFILMENT OF REQUIREMENT FOR THE AWARD OF
MASTER DEGREE IN COMMERECE (M.COM).
SESSION 2020-2021

UNDER THE GUIDANCE OF

DR. RABINJYOTI KHATANIAR
ASSISTANT PROFESSOR
DEPARTMENET OF ECONOMICS, B.H. COLLEGE, HOWLY

SUBMITTED BY
RABBUL ISLAM
M.COM 3rd SEMESTER
G.U. ROLL NO: PC-191-118-0103
G.U. REGISTRATION NO: 245549 OF 2016-17

B.H. COLLEGE, HOWLY

 DECLARATION

I hereby declare that this project report entitled “SAVINGS HABIT OF RURAL

HOUSEHOLD: WITH SPECIAL REFERENCE TO UZIRARCHAR G.P. BARPETA

(ASSAM)” has been submitted to B.H. College, Howly, Gauhati University, Gauhati

(Assam) in partial fulfilment for the award of the degree “Master of Commerce (M.Com)

under the course curriculum of Gauhati University. This project was assigned to me under the

esteemed supervision and guidance of Assistant professor DR. Rabinjyoti Khataniar,

Department of Economics of B.H. college, Howly.

I also hereby declare that this project report has not been submitted at any time to any other

University or Institute for the award of any degree or diploma.

Place: B.H. College, Howly .....................................................

Date: Rabbul Islam

M.Com 3rd Semester

Roll No:-PC-191-118-0103

G.U. Registration No:-245549 of 2016-2017

B.H. College, Howly

 CERTIFICATE OF ORIGINALITY

This is to certify that the project report entitled “SAVINGS HABIT OF RURAL

HOUSEHOLD: WITH SPECIAL REFERENCE TO UZIRARCHAR G.P. BARPETA

(ASSAM)” was carried out by RABBUL ISLAM as a part of his academic curriculum for

partial fulfilment of the Master degree in commerce. This study is carried out under my

guidance. The candidate has fulfilled all the requirements for submitting the report under the

regulation of the department of M.Com, B.H. College, howly. The report is the result of his

own investigation.

I declare that the form and contents of above mentioned project are genuine in nature and

have not been submitted in part or full, for any other diploma or degree of any other

organization/ institution/ university.

I wish him success in his life.

Date: .......................................................

Place: Signature of Supervisor

Dr. Rabinjyoti Khataniar
Asst. Professor, Dept. Of Economics
B.H. College, Howly
 ACKNOWLEDGEMENT

I express my sincere thanks to Rajendra Kumar Jajodia, Co-ordinator PG Department of

Commerce, B.H. College, Howly, for his valuable suggestion and help in preparing this

project report.

I express my deep sense of gratitude to my guide Dr. Rabinjyoti Khataniar, Assistant

Professor of economics department, B.H College, Howly, for his in valuable guidance in this

endeavour. He has been a constant source of inspiration and I sincerely thank to him for the

suggestions and for showering immense knowledge and wisdom for preparing this report.

Finally, it is my foremost duty to thank my respondents who helped me to complete my field

work without which this project report would not have been possible.

Date: Rabbul Islam

Place: M.Com 3rd semester

B.H College, Howly

 PREFACE

Project is an in dependable part of any format education. They help us to have a practical

exposure and better outlook of a subject. Which we are studding in a course like M.Com, the

student are equipped with strong theoretical knowledge to make this theoretical knowledge

stronger, the student are assigned certain project in various organisation to get an idea of the

working style.

For the purpose of my investigation, I visited the householder and collected necessary

information. And collected information through observation and direct contacting with the

different person present there

I have given my best efforts to cover all the aspect related to the topic and make the report a

purposeful.
 ABSTRACT

Individuals and families attitude towards money vary greatly. People have different

behaviour towards savings and disparities in income levels. There are people who believe that

money obtained today must be used to meet present needs and future will care for itself

(spenders). There are others who also hold the view that no matter how little one’s income is

there is the need to save part of that income (savers). In this paper an attempt has been made

to analyze saving behaviour of rural household. The analysis reveals that most of the people

belong to the agricultural family and that influence them to retain their surplus income for

future savings .There aim of savings might be used for further live hood. Cultivation purpose

or for the domestic needs and future need which ultimately leads to national savings. The

national savings saving pave the way for investment in the infrastructural and economic

development of the country.

 LIST OF TABLE

Table No. Description Page No.

2.1 Gross domestic savings rate 28-29

2.2 Component of household financial savings 31-32

2.3 Life insurance penetration and density in Assam and India 33

3.1 Socio- economic indicator of the sample village 40

3.2 Age group of householders 41

3.3 Gender of the householders 42

3.4 Marital status of householders 43

3.5 Educational qualification of householders 44

3.6 Primary occupation of householders 45

3.7 Income towards saving 47

3.8 Saving awareness of rural households 48

3.9 Age group towards savings 49

4.1 Influence factor of savings behaviour 51-52

4.2 Motivational factor towards saving 53

4.3 Forms of savings 54

 LIST OF CHART

Chart No. Description Page No.

3.2 Age group of householders 41

3.3 Gender of the householders 42

3.4 Marital status of householders 43

3.5 Educational qualification of householders 44

3.6 Primary occupation of householders 46

3.7 Income towards saving 48

3.8 Saving awareness of rural households 49

3.9 Age group towards savings 50

4.1 Influence factor of savings behaviour 52

4.2 Motivational factor towards saving 53-54

4.3 Forms of savings 55

 CONTENTS

Certificate from the institution

Certificate from the guide

Declaration

Acknowledgement

Preface

Abstract

CHAPTER-I Page No.

INTRODUCTION AND DESIGN OF THE STUDY 1-13

1.0 Introduction 1-3

1.1 Statement of the problem 3

1.2 Objective of the study 4

1.3 Conceptual framework 4-8

1.4 Research methodology 8-11

1.5 Significant of the study 12

1.6 Scope of the study 12

1.7 Limitation of the study 13

CHAPTER-II

REVIEW OF LITERATURE 14-38

2.0 Introduction 14

2.1 Different theories on consumption and savings 14-19

2.2 Studies on household saving (At micro level) 19-28

2.3 Estimation of saving in India (At macro level) 28-36

 2.4 Motivating Factor of saving 36-38

CHAPTER-III

SOCIO- ECONOMIC CHARACTERSTICS AND DETERMINANTS

OF SAVINGS BEHAVIOUR OF RURAL HOUSEHOLD 39-50

3.0 Introduction 39

3.1 Socio- economic characteristics 40-46

3.2 Income and savings behaviour of rural household 47-50

CHAPTER-IV

INFLUENCE FACTORS AND FORMS OF

SAVING OF RURAL HOUSEHOLD 51-55

4.0 Introduction 51

4.1 Influence factor of savings 51-52

4.2 Motivational factor 53-54

4.3 Forms of savings 54-55

CHAPTER-V

SUMMARY OF FINDINGS, RECOMMENDATION AND COCLUSION 56-58

5.1 Summary of findings 56-57

5.2 Recommendation 57-58

5.3 Conclusion 58

BIBLIOGRAPHY 59-60

SCHEDULE CUM QUESTIONNAIRE

 CHAPTER - I

INTRODUCTION AND DESIGN OF THE STUDY

1.0. Introduction:
Savings is an important macro-economic variable to be studied under the preview of

the economic arena on an individual as well as household basis. In a country like India, the

income standard is almost uncertain and to more consumption rather than saving which has

been a central problem. If the saving is low, then the investment will also be low leading to

low capital formation. India is developing country where, there has been a consistent increase

in the national saving rate after the independence period, through with considerable

fluctuations from year to year. In international standpoint of view, India has a high saving

rate compared to other developing countries, expect those East Asia. According to classical

economists like Adam Smith, David Ricardo and J.S.Mill, “Saving is an important

determinant of economic growth”. Saving components can be based on an individual or on

household basis which proves to be well being. As for an individual saving becomes the

cushion for the future’s intercourse of the unforeseen and upcoming as well as the uncertain

circumstances of life. Saving is the part of the income earned by the individuals. For the

higher economic growth for the country, marginal propensity to save should be higher but it

helps to the multiplier process. 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. According to

1
Lewis (1954), the central problem in the theory of economic development is to understand

the process by which a community which was previously saving and investing four or five

percent of its national income changes into an economy where voluntary saving is running at

about twelve to fifteen percent or more of the national income. In the developed countries,

the income is generated at a higher rate which encourages people to have more savings which

opines to more 2 investments leading to more capital formation. But in a country like India,

the income standard is almost uncertain and leads to more consumption rather than saving.

Savings are very imperative for supporting and developing rural economy and

industries. They provide several benefits for households directly. Savings could be used for

investments. Indirectly saving indicates repayment ability, also increases credit rating and as

a collateral in a credit market. The source of own capital clearly is household savings.

However this financial source is limited. Not super singly that in many cases rural

entrepreneurs meet their financial need through their rates is sufficiently high. Household

saving is usually the largest components of domestic savings in developing countries

specially the lower income.

Majority of the rural household are small scale farmers and as such a significant part

of their non-farming income comes from small and medium enterprise. Saving can be defined

as the income which cannot be spent on current consumption. Total Saving comes from

individual save out of their personal income. Business retained and there by save, some of

their profits. The government save when they run a budget surplus.

Today’s saving mainly in rural areas consists of the assets in form of animals, metals

and also due to some awareness about the saving institutions available nearby encourages

people to save as to opt the rate of interest from the amount saved from time to time. The

sources of income of the households are accounting to be diversified. In most of the

2
households, the only source of income has been resulting in originating from various other

sources also. From due to these varied scope of income generated, the saving portion is also

generated to some extent.

1.1 Statement of the problem:

Saving is a very important component which is responsible for combating or

meeting any emergency accrued by the individuals or the households or any corporate

agencies. Saving is more of meant for meeting contingencies but sometimes it also acts as a

form of investment. But sometimes people are not inclined towards saving and the very

delicate reason is lack of awareness. The present study can be a relevant one to know the

reason of dissaving and if saving occurs then what are the determinants which are responsible

for saving. Aggregate saving in any economy is dependent on a number of variables. For

effective economic planning, the planners should have an idea regarding the volume of

saving of different groups of people and the method by which saving can be improved more

over in a better way. To advocate appeals for saving, there is a need to know about the saving

motives of the individual as well as households. An understanding of the saving preferences

also helps in calculating the saving instruments which can efficiently arouse saving.

Uzirarchar is a village having a very poor access to the saving need which really has made a

great interest in the minds of looking at the perspective as a whole. Right now, saving more

and spending more simultaneously has become the basic and conflicting factor for the

economy. The present influence of the households in Uzirarchar should experience total

saving, which helps to step up the saving in the economy. Thus, there is an immediate need to

carefully understand the determinants of both the household saving rate and the saving

pattern in the rural households of Uzirarchar.

3
1.2 OBJECTIVE OF THE STUDY:-

The objectives of the present study in “Saving habits of rural household: with

special reference to Uzirarchar G.P. Barpeta (Assam). The specific objectives are:

i) To study the socio economic status of rural Households.

ii) To analyze the attitude of the respondents toward saving.

iii) To examine the determining factors of savings at household level.

iv) To evaluate the choice and saving preference of rural households.

1.3. Conceptual Framework

1.3.1 Definition of Saving

There are two concepts of saving, namely a flow concept and a stock concept. As a

flow concept saving is the earned surplus, that is, current income minus expenditure while as

a stock concept, saving is the change on net worth. However, the terms ‘saving’ and ‘savings’

are rather confusing. No criteria to distinguish between these two terms are noticed by the

present researcher. Going through the available literature on the subject, it is found that some

researchers use both the terms interchangeably. Leff (1969), Thirwall (1974), Pandit (1991),

are the scholars to quote a few. Many studies use the term ‘saving’ alone throughout the

analysis. National Council of Applied Economic Research (NCAER), Deaton (1989),

Schmidt-Hebbel and et. al. (1996), Kraay (2000) have used only the term ‘saving’ in their

studies.

However, there are two methods available in literature to estimate the savings of the

household sector viz., balance sheet method and income and expenditure method. In balance

sheet method, saving is defined as the difference between net change in the total assets and

total liabilities. Whereas income and expenditure method (current account method or earned

4
surplus method) saving is the excess of income over expenditure i.e. the residual income over

consumption expenditure. Though there has been a debate on the methods, procedure and

issues of estimation of savings, treatment of components of savings as investment

expenditure or consumption expenditure, researcher put efforts to Estimate the savings under

income and expenditure method only by capturing the data on current income and

consumption expenditure.

Hence, as mentioned above, one of the popular definition of saving can be derived

from income and expenditure method which is also known as earned surplus method and it is

the direct method in which saving is the excess of current income over current consumption.

Symbolically,

S=Y–C

Where,

S, Y and C indicate savings or earned surplus, Income and Consumption

Expenditures of the households respectively.

1.3.2 Household Income

Gross household income comprises income from farm and non-farm activities such as

crops, livestock, renting out assets, labour, trade, handicrafts and others. It does not include

capital gains or losses such as the changes in the value of assets due to appreciation and loss

of assets due to natural factors. Net household income, on the other hand, consists of net

income from farming, net income from business other than farming, wage and salary

earnings, remuneration, rentals, interest earnings, gifts and subsidies.

1.3.3 Farm and Non-farm Income

Gross farm income includes returns from crops, livestock, and rents from hiring out

agricultural assets including land. It reflects the total productivity of all the resources used on

5
the farm. It is the value of the total output of the farm over the agricultural year and includes

outputs that are sold, consumed by the household, used for seed or livestock feed, paid in

kind, or held in inventory at the end of the agricultural year. Gross farm income has three

main components: (i) crop income (ii) livestock income and (iii) rental income. The value of

main and by products comprise crop income, while the livestock income includes the value of

milk and animal products such as eggs, meat, mutton, and cow dung etc. income from sale of

animal and poultry birds. The rents received from hiring out bullocks, machines, implements

and leasing out land make up rental income. Non-farm income includes income from (i)

regular salaries and daily wages of family members (ii) business income (iii) handicrafts,

trade, artisanship and others (iv) transfer incomes such as gifts, gambling, remittances,

interest received from money lending and house rents. Net farm income is the difference

between gross farm income and total farm expenses.

1.3.4 Savings and Investment

Saving is defined as consumption foregone. It means withholding something valuable

for the future use. This simple phrase describes two key elements of any saving activity,

namely: Discipline and sacrifice: Withholding something valuable for future use instead of

consuming it immediately.

Planning for the future: Saving is all about the future, about anticipating and preparing

for possible risk and emergencies (a bad harvest, sickness, natural calamities, etc.), preparing

for upcoming events and expenditures (payment of school fees, marriage and old age, etc.) or

starting a new business or expanding an existing one. A high amount of saving helps the

economy to progress on a continuous growth path since investment is mainly financed out of

savings. People tend to save to compensate for uneven income streams. The foresighted

people save money for their future. Savings are made by people out of the income from

economic activities. From the point of view of investors, investment is a commitment of

6
present funds in order to derive future income in the form of interest, dividends and

appreciation in the value of securities. However, every investment entails some amount of

risk. It requires ‘present certain sacrifice’ for ‘future uncertain benefits’. Successful investing

requires clear-cut objectives based on current information as well as a thorough knowledge of

the characteristics of the chosen investment avenues. When there is a decision not to spend all

the current income, then emerges the investment decision. Individuals should make decisions

regarding such matters as to how much of their current income should be spent or consumed

and how much should be saved or invested in accordance with their preferences for spending

versus saving. Further, when establishing their preferences, individuals should make

consumption-investment decisions in a manner that will maximize their utility, where utility

is a measure of the individual’s level of satisfaction and will vary from person to person.

1.3.5 Different Forms of Household Saving

Household saving is the difference between the household’s current income (cash and

kind) and expenditure over a specified period, or in other word, saving represents the non15

consumed income (cash and kind) of a household. However, it may be divided into following

forms or types:

Saving in cash: When money is saved directly and kept at home, deposited with some

trustworthy relative or in the bank. Saving in financial assets/bond holding: When saving

takes the form of saving certificate which offer interest on a yearly basis. Saving in

agricultural product – when material goods (crop grains, seeds, etc.) are stored directly or

surplus cash is converted into goods before saving, since these goods can be exchanged for

other goods or cash when needed. Saving in livestock – when livestock is kept like money

because of its liquidity value in case of any urgent need of cash in the family.

7
1.3.6 Definitions of other technical terms used in the study:

Households: In the present study, a household is defined in terms of the definition given by

the Department of Economics and Statistics (1985) as a group of persons normally living

together and taking food from a common kitchen. The members of the household may or may

not be related by blood to one another.

Head of the Household: The person, male or female, who takes all major decisions related to

the household activities, is considered as the head of the household.

Occupation of the Household: The study considers the occupation of the household on the

basis of the main occupation of the head of the household. Extent of land possessed is not a

criterion to classify a household as cultivator or non-cultivator household.

Earners: Household members who works in a farm or non-farm enterprises or those who

works in others’ farm or non-farm enterprises and in government for wages or salaries are all

considered as earners.

Financial institutions: A financial institution is that which accepts deposits from savers

and/or undertakes lending activities and it is used interchangeably with a financial

intermediary.

Formal Financial Institutions: Financial saving can be held in formal institutions such as

bank, in semi-formal financial institutions like savings and credit co-operative societies and

micro finance institutions or in other informal institutions. Formal financial institutions

include commercial banks, post office saving banks, specialized development banks, RRBs,

insurance firms, co-operative banks and any other institutions that fall under the control of

the Reserve Bank of India.

1.4 RESEARCH METHODOLOGY

A research methodology is an art of scientific investigation. Research methodology is

the scientific way to solve the research problem. It may be consider as a science of study how

8
research is done systematically. It gives an idea about various steps adopted by the researcher

in a systematic manner with an objective to determine the research problem and the logic

behind them. The research methodology is adopted in the present research study is given

below.

1.4.1 RESEARCH DESIGN

Research design can be explained a blueprint that directs the researcher to achieve the

goals or objectives of the study. The project approach in this study was chosen best on the

purpose and the research objective to be addressed. Descriptive statistics was used in the

analysis. It deals with presentation of numerical facts on data in simply percentage wise and

with methodology of analysing the data descriptive is preferred because it summarise

essential feature of data such as variability and distribution specifically percentage was used

in the analysis with the help of tables in the presentation.

1.4.2 RESEARCH TOOLS

The research tools are the means which the researcher used to collect data for the

study. This research tools to be used are the questionnaire and interview. Self administered

questionnaire was used to ascertain information from literate households especially open

ended and close ended questions were used. This was to ensure moderately high

measurement validity. A questionnaire is a document containing questions and other types of

items designed to solicit appropriate information for analysis, open ended questions require

specific response. The questionnaire was designed to encompass four main section- profile of

the householders, economic status of the householders, factor that influence saving behaviour

of householders, benefits derive from savings and forms in which household save.

Face to face interview was also used to certain information from illiterate households.

Interview guide was designed as a guide to speed up interview process. Face to face interview

9
is a social interaction between an interviewer and interviewee, where interviewer posses

questions and record the answers given by the interviewer. Face to face interview ensures

relatively high response rate which are often attainable.

1.4.3 POPULATION:

Population is the entire group of individual or items from which a sample may be

selected for statistical measurement. It refers to any person or group or people who can be

part of the study. The population is a complete set of subject having common absorbable

characteristics. In this study the target all the household of Uzirarchar G.P. are the target

population for the present study. Due to limitation of time the researcher has selected 75

households from that population.

1.4.4 SOURCES OF DATA

The sources of data collection are the purpose of this research study is both the

primary and secondary sources. The primary data sources consist of data collected through

schedule method. The secondary data sources consist of reference books, internet, websites,

newspaper, journals etc.

1.4.5 METHOD OF DATA COLLECTION

A. Primary data: The basic methodology adopted for primary data collection is the

schedule cum questionnaire method to serve the purpose of the research, a

structured schedule cum questionnaire has been designed for the respondents and

they are asked to fill up questionnaire by making preferred option and the

investigator interviewed the respondents and collect information. It has been

designed in such a way that maximum relevant information can be gathered.

10
 B. Secondary data: The method for collecting secondary data is mainly of search and

find where the researcher looks into various available literatures, journals, books and

web searches and thus obtain them for the purpose of research.

1.4.6 SAMPLE DESIGN

A. Sample size:

The study involves a sample size 75 respondents, irrespective of their

Background, educational qualification and age group.

B. Sampling technique:

The samples are selected on the basis of convenient sampling technique. The

reason for using the sampling technique is that researcher can selected the samples

cost and time effectively. It offers an easy way to obtain the raw data for further

analysis.

1.4.7 TOOLS FOR DATA PRESENTATION

The collected data have been properly classified, tabulated and presented through

various diagram such as pie charts, graphs or bar diagram, line graphs etc.

1.4.8 TOOLS FOR DATA ANALYSIS

The purpose of analysing the data, simple percentage method has been applied.

It is calculated as:

𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑟𝑒𝑠𝑝𝑜𝑛𝑑𝑒𝑛𝑡𝑠
Percentage (%) of respondents = 𝑇𝑜𝑡𝑎𝑙 𝑛𝑢𝑏𝑒𝑟 𝑜𝑓 𝑟𝑒𝑠𝑝𝑜𝑛𝑑𝑒𝑛𝑡𝑠 ×100

11
1.5 Significance of the study:
There are not many studies conducted or available relating to the determinants of

saving habits of the rural households of Uzirarchar G.P. at a micro level. There is less good

publication on the district as well as state of rural messes. This is because the NSSO and

other related organisations or the official agencies that collected such data for the whole state

and country does not prove to be generally publish data separately for rural people and rural

areas especially in the context of rural household. Most of the studies on savings habit and

saving pattern of rural people are based on secondary data which sometimes does not prove

to be adequate for the study. Most of data available does not serve the need of Uzirarchar in

ground level prospective. While studies conducted on the saving and income expenditure

among rural and urban households for various expenditure classes, little effort has been made

to study the saving pattern related the individual’s behaviour towards saving within rural

sector. The study on pattern of saving behaviour in rural areas provides an important

indicator for economic development of the state as well as country. This study can also help

to define the factor influencing the saving pattern and to analyze certain constraints in the

saving attitude in the rural areas.

1.6 Scope of this study:-

This study will be carried out the assess the savings behaviour of rural households

as well as individual communities, a case study of Uzirarchar G.P of the Barpeta district

Assam. The research could have been conducted at all rural communities of Barpeta district,

for want of time and finance; it had to be focused on selected areas within Uzirarchar village

of the district of Barpeta, Assam. The selected areas were East Uzirarchar, Middle Uzirarchar

and West Uzirarchar.

12
1.7 Limitation of the study:-

This study examined the saving habits of rural household head in rural

communities of some of the problem encountered by the researcher has to do with

completeness of the questionnaires by respondents. Some of the respondents partially filled

the questionnaires due to busy schedules of households. Funds is the number one limitation

factor for the successful completion of this research as the person embarking on this research

is a student and does not have in this disposals grants which may help in a small way for its

successful completion. Another main factor may be time. Time is too short to complete the

work of this magnitude. Another one factor is most of the respondents are illiterate because

the project work done on only rural people based.

Mainly three limitation factor focus of the study this are:-

i) This study confines within the limited period.

ii) This study covers only the rural households.

iii) The study may be bias due to primary data.

Being that as it may, the researcher will do the best to make sure that the impact

of these afore mentioned limitations are limited and strive to come out with a fantastic

research work.

13
 Chapter-II
REVIEW OF LITERATURE

2.0 Introduction:

There is no dearth of literature on studies relating to saving-growth discourse both

theoretical and empirical. However, for better understanding of the theoretical concepts and

empirical phenomenon of household saving behaviour at macro level in general and at micro

level in particular, this chapter on literature review has been divided into several sections. In

the first section the various theories of saving has been discussed and the second and third

section cover empirical studies based on saving at macro level particularly the available

literature on India’s saving estimation and the final section attempts to illustrate the

determinants of saving behaviour in India and abroad. However, the entire discussion has

been concluded with possible research gap especially on saving-growth discourse.

2.1 Different Theories on Consumption and Saving:

In economic literature, there are ample studies in developed and developing countries

explaining how different determinants affect the consumption behaviour. As we know that

the saving is nothing but the refraining from present consumption which can be expressed as

income minus consumption (Y-C). Thus, different theories of the consumption behaviour

also explain the saving behaviour.

2.1.1 Absolute Income Hypothesis

Keynes (1936) was the first to develop a systematic theory of aggregate consumption

expenditure by households. He assumed consumption expenditure to be a function of current

disposable income. Keynesian absolute income hypothesis is based on psychological law

14
which states that “men are disposed, as a rule and on average, to increase their consumption

as their income increases but not as much as the increase in their income” (Keynes, 1936).

The theory exhibits that the marginal propensity to consume out of disposable income is

positive and less than one which indicates that as the income increases, the part of increment

in earning is partly consumed and partly saved for purpose of financial security in periods of

unemployment, illness or future income. The absolute income hypothesis is a short run theory

and makes the assumption that marginal propensity to consume (MPC) is between zero and

one. MPC declines with increase in income, implying that marginal propensity to save

increases as income increases. The implication of this hypothesis is that low income families

save a lower percentage of their income as compared to high income families. The

proposition of the absolute income hypothesis that MPC is positively related to income was at

first accepted, but empirical studies have shown that MPC is stable over time (Kuznets,

1946). Available data on aggregate consumption and savings over time does not support the

proposition that MPC is less than APC (average propensity to consume) and that marginal

propensity to save grows over time as aggregate income increases. However, the constant

slope of the consumption function does not alter the basic proposition of absolute income

hypothesis which postulates that consumption is an increasing function of disposable income.

2.1.2 Relative Income Hypothesis

The relative income hypothesis was proposed by Dusenberry (1949). According to

this hypothesis, a household’s consumption expenditure is a function of the relative income

of the households. The relative income can be the average income of the households in the

neighborhood where the household resides, or it can be the highest income that the household

has attained in the near past. When a household’s income falls, the household disserves or

borrows in order to prevent a large fall in their living standards and also to maintain their

living standards at par with their peer groups. The short run APC is greater than the long run

15
APC implying that the short run average propensity to save is smaller than the long run

average propensity to save. According to the relative income hypothesis an increase in

income is always proportional to the increase in household consumption expenditure

irrespective of whether the increase in income is small or large. However, empirical evidence

suggests that exceptionally large and unexpected increases in incomes are often associated

initially with a less than proportionate increase in consumption. Consumption standards are

irreversible in the short run, but not in the long run because people cannot go on disserving or

borrowing to maintain their living standards, as it is not sustainable if incomes continue to

decrease. According to this theory, income and consumption change in the same direction,

which implies that recession is always accompanied by decreases in aggregate consumption

expenditure which was proved to be wrong in the USA between 1948 and 1949, after the 2nd

World War when consumption expenditure was rising while the disposable income was

decreasing.

2.1.3 Permanent Income Hypothesis

Friedman (1957) in his permanent income hypothesis proposed that the basic

determinant of consumption is not income but wealth. On the assumption that consumers take

into account of future income and future consumption possibilities when planning current

consumption, changes in current income which Friedman calls measured income, will only

affect current consumption by way of resulting changes in wealth. The household’s wealth is

the present value of the future flow of income which is expected by the household to be

varying from year to year. Assuming an infinite time horizon, permanent income is the stock

of wealth multiplied by the interest rate or annual return on wealth. It is that part of the

household’s measured income which is regarded as stable and as reflecting the household’s

income expectations. The difference between measured income and permanent income is

termed as transitory income which may be positive or negative and occurs due to temporary

16
and unanticipated changes in current income. According to Friedman (1957), permanent

consumption is planned on the basis of permanent income and the relationship between the

two variables is proportional. The co-efficient of proportionality which is the true underlying

MPC and APC is assumed to depend on the household’s saving decisions, namely, household

preferences, the nature of uncertainties facing the household, the rate of interest and the ratio

of human to non-human wealth. The higher the ratio of human to nonhuman wealth the

greater is the incentive to save and acquire non-human wealth. Thus, any positive transitory

income is not spent on consumption, but is saved. Any changes in measured income will

affect current consumption only if they cause the household to alter its estimate of permanent

income.

2.1.4 Life Cycle Hypothesis

The life cycle hypothesis is propounded by Modigliani and Brumberg (1954) and later

developed by Ando and Modigliani (1963). This theory is one of the major neoclassical

theories of savings which is based on the argument that households have a perfect vision of

their future income flows, their consumption levels and their lifespan and in addition they

behave rationally and with self-control as they prepare for retirement. A typical individual

maintains a nearly constant or perhaps slightly increasing level of consumption over his life

cycle, although a different pattern is displayed by income. Given that the household has a

known life span and intends to leave no legacies and given certainty, the motive for saving is

to rearrange time consumption in relation to the expected future income stream. The

hypothesis assumes that the household’s current consumption is proportional to its total

resources, the factor of proportionality depending on the interest rate used to discount future

income and tastes and age of the household. The result of a change in current income or

consumption depends on the effect of that change on the household’s total resources.

According to the hypothesis, each age group has a proportional relationship between its

17
consumption and total resources, the co-efficient of proportionality being lower for middle

aged households than for the young and the old. The middle years are a period when income

is relatively high, consumer durables have been acquired and there is a need to accumulate

assets to finance consumption upon retirement.

2.1.5 Psychological and Sociological Theories

Psychological and sociological theories of savings assume that consumer’s tastes and

expectations are not fixed but rather they are affected by economic or social stimuli and

conditions. Change in environment and the information received affects the response and

decision of the household. Savings are affected by the ability to save and the willingness to

save. Some households are less able to save due to their low economic resources and special

consumption needs. For those households that can afford to postpone consumption, they must

have the will power to save. According to these theories, the decision to save in a household

is determined by consumer’s expectations and sentiments, families, peers and past saving

experiences (Duesenberry, 1949; Katona, 1975; Furnham, 1985; Cohen, 1994).

2.1.6 Behavioural Theories

The incompleteness of the earlier theories explaining the real determinants of saving

which is subject to change under different behavioural circumstances later imposed the

necessity of new theories of saving illustrating the impact of human behavior. The behavioral

life cycle hypothesis propounded by Shefrin and Thaler (1988) is one of such behavioral

theories of savings. According to these theories, households are expected to respond and

create their own behavioural incentives and constraints to savings. An individual can be seen

as a planner and a doer. As a planner, the individual is concerned with lifetime utility, while

as a doer the person behaves like a one period person who is both selfish and myopic. For the

Doer to exhibit some control, preferences must be altered, modified and in a way constrained.

The individuals often adopt rules that constrain their opportunities to spend that can be

18
internally or externally imposed. For example, an individual can save voluntarily for

education, wedding ceremonies or in pension funds that are imposed by the state. Restrictions

can also be imposed on borrowing unless it is for specific expenditures. Household’s savings

are therefore as a result of self-imposed welfare-improving constraints on spending (Maital

and Maital, 1994).

2.2 Studies on Household Saving (At Micro Level):

There are ample studies to explain saving behaviour and its determinants theoretically

and empirically. Here an effort has been made to study the available literature relevant to the

present study and presented under the following heads.

(a) Socio-economic issues and saving behaviour.

(b) Demographic issues and saving behaviour.

(c) Institutional issues and saving behaviour.

2.2.1 Socio-economic issues and saving behaviour

Income is considered as the most important factor in the determination of the saving

behaviour of an individual. More income means, normally, more saving and vice-versa.

Different forms of the financial relationship between saving and income have been tested.

Some studies found a statistically significant effect of income on saving, and other studies

found no significant effects of income. Both Keynes (1936) and Friedman (1957) indicate a

positive effect of income on saving. The studies by Alessie et al. (1995), Browning & Lusardi

(1996) have demonstrated the positive relationship between income and saving. Avery and

Kennickell (1991) claimed that the top income deciles of households in U.S. contribute the

largest proportion of total saving. On the contrary, Bosworth, Burtless & Sabelhaus (1991)

showed negative saving for the lower income group. Using time series data for forty nine

countries, Rossi (1988) indicated the positive impact of current income levels on savings rate

19
without differentiating types of income. Friedman (1957), by distinguishing components of

income into permanent and transitory asserts that households spend mainly the permanent

income and the transitory income immediately be channeled to savings. Studying a group of

developing countries, Gupta (1987) observed that savings respond positively to transitory

income. Qureshi (1981) and Paxon (2001) estimated saving function based on transitory and

permanent income and found MPS out of transitory income much higher than that of

permanent income. In India Athukorala and Sen (2004) found a positive relationship between

income and saving just as Abdelkhalek et al (2009) found in their microeconomic analysis of

household savings in Morocco. These findings suggest that households save a larger portion

of their income when their income is higher. Studies on financial exclusion by Devlin (2005)

and Kempson & Whyley (1999) reveal that income significantly influences the probability of

being financially excluded. The evidence shows that low income people have higher

tendency of being excluded of financial services, since this group of people have lower

resources and are highly likely to face difficulties in accessing certain financial products.

The occupation pursued by individuals often determines their income cycle and affect

the stability and regularity of their income and it is postulated that people whose occupation

earn them higher incomes are able to have higher savings than those who are into menial

jobs. Occupations with uncertain income motivate precautionary saving. Those households

who have secured job save less than those who have risky jobs and uncertain income (Loayza

and Shankar 2000, Gardiol 2004, Gauriglia and Kim 2004). However, study by Denizer et.al

(2002) shows that saving is not affected by source of income, that is, occupation. Fernandez

et.al (2009) asserts that income and job uncertainty are being highly correlated and therefore

exhibits a close link between job uncertainty (income uncertainty) and the saving.

20
 The employment status of the household head has received considerable attention as a

source of differences in savings across households in developing countries. Ramanathan

(1969), Kelley and Williamson (1968), respectively have found that self employed persons

save the most in India and Indonesia. Snyder (1974), on the other hand, does not find support

for this result in the case of West Africa. In Ghana, Quartey and Blankson (2008) found that

majority of the households who save were engaged in agriculture but their average savings

were low than those engaged in finance, insurance, business and services. Contrary to this,

Dupas and Robinson’s (2013) work showed that potential savers in Kenya were market

vendors, texi drivers and self-employed artisans who did not have saving account but were

interested in opening one and this asserts that the poor have the desire to save (Issahaku,

2011).

The capability and competency in making financial decisions are likely to be

indicated by individuals’ educational backgrounds. Educational attainment reflects a person’s

level of knowledge, confidence, capability to seek information, and hence, the ability to make

decisions regarding the household’s finance. Having these proficiencies increases the

likelihood of performing saving. In a recent study, Lusardi and Mitchell (2007) found that

individuals with lower educational attainment were more likely to be financially illiterate.

Studies by Alessie et al. (1995), Avery & Kennickell (1991), Douglas, Bernheim & Scholz

(1993), Anttanasio (1993) and Lusardi (2000) have noted a positive relationship between the

level of education and saving. Besides, Devlin (2009) found that education negatively

influence the likelihood of being financially excluded, hence, implying that saving may be

more prevalent amongst individuals who have higher educational attainment.

The literature suggests that there is a strong relationship between financial literacy

and household welfare. Financial literacy is defined as the ways how people manage their

money in terms of insuring, investing, saving and budgeting (Hogarth, 2002). Studies indicate

21
that households with less financial knowledge or literacy, are not able to plan for their

retirement (Lusardi, 2007), receive lower asset levels and usually borrow at higher interest

rates (Stango and Zinman, 2006). Increasing financial literacy and capability promotes better

financial decision-making, thus, enabling better planning and management of life events such

as education, illness, housing purchase and retirement. Researchers also assert that financially

literate people would know how to manage their money, understand how financial

institutions work and know how they should handle their financial affairs and how to be

responsible financially (Beal and Delpachtra, 2003). Various types of surveys have been

conducted to measure the degree and spread of financial literacy. People with a low level of

education, females demonstrate low level of financial literacy, which subsequently affect

financial decision-making (Lusardi, 2007).

Moreover, holdings of assets like size of land holdings, value of house can be viewed

as an indication of the increase in household income and hence the capacity to save. Larger

land ownership helps the farmers to benefit from economies of scale and, hence, higher

production and earning (Kulikov, 2004). Similarly, Bhala (1978) found out that landholding

strongly influence the rate of total saving, since the size of land holding influences income

and income influences savings positively.

2.2.2 Demographic issues and saving behaviour

General consensus among researchers all around the world has shown that savings are

being influenced by demographic variables. Factors such as age, gender, household size etc.

are important aspects in the decision to save. The age of the household head is an important

determinant of household saving in rural areas (Kelly and Williamson, 1968) and contrary to

this Shultz (2005) who analyzed the demographic determinants of saving in Asia found no

significant relationship between saving and age composition. In studying the determinants of

household saving in Nigeria, Akpokodje et al. (2004) observed that the youth and elderly

22
have low income and low saving and those in middle age have higher Productivity, income

and hence higher saving. Fernandez et.al (2009) investigated the determinants of saving from

eight countries in Europe and found that people tend to save more as they reach retirement

and thus a positive relationship between age and saving. Demercy and Duck (2006) also

found that saving rates in line with the life cycle model. They concluded that people in the

working life are more interested in savings. Besides, Bovenberg and Evans (1990) in their

work shows that higher the old aged population in the nation, the lower is the saving rate of

the economy where as a study of Foley and Pyle (2005) concluded that the young and elderly

population saves more than the middle aged population.

Hence, the effect of age and dependency ratio as demographic characteristics on

saving is mainly derived from the life cycle model which postulates that when the share of

the working population relative to that of retired persons increases, savings is likely to

increase (Lahiri 1989, Bosworth 1993, Higgins and Williamson 1996). The dependency ratio

is defined as a percentage of the population aged 14 and below plus a percentage of the

population aged 65 and above. Studies on the relationship between dependency ratio and

savings have mixed findings. While Manzocchi (1999) found a positive relationship between

dependency ratio and private savings, Loayza et.al (2000) Deaton (1995) and Leff (1969)

found that high dependency ratio have a negative impact on savings. Similarly, Elfindri

(1990) conducted a study to examine the demographic impact of family size on household

savings in some part of central Sumatra in Indonesia and found that the size of the household

and the number of children at school going age negatively affect household savings. In

contrast to the findings of Elfindri (1990), Browning and Lusardi (1996) who analyzed micro

theories and data on household savings found that household size can have a positive effect

on saving according to economies of scale. The difference in the findings of Elfindri (1990)

and Browning and Lusardi (1996) stems from the fact that Elfindri (1990) looked at

23
household size in general while Browning and Lusardi (1996) extended their study to include

composition. Thus, by composition, a household with many of its members working which

have a positive effect on savings while a household with many of its members being

dependents will have a negative effect on savings. But taking the household size as a whole,

there is likely to be a negative relationship with savings.

But, gender differences are expected to have an impact on saving behavior due to the

divergences in gender-based roles of household heads, as well as variations in consumption

habits, attitudes, preferences and the level of financial knowledge. Research has shown that

women usually know less about financial management as opposed to men (Chen & Volpe,

2002; Goldsmith & Goldsmith, 1997). This is partly due to the greater responsibilities held by

women in raising the family, lower earnings, longer life expectancy and lower saving, which

ultimately lead to greater challenges in financial management (Anthes & Most, 2000 and

Timmermann,2000,).Croson and Gneezy (2004) show that there is significant difference in

risk-taking between men and women. Women are more risk-averse compared to men and

thus influence the saving and spending decision they make, but there is not much information

about how saving behaviors differ between males and females. Zhong and Xiao (1995) in

their research showed that there is no gender difference in the saving and investment behavior

and hence insignificant variation in risk-taking attitudes between genders. Lusardi (2006)

found that women are less financially literate than men and hence were more likely to face

difficulties in saving for retirement. Overall, prior studies demonstrate an overwhelming

amount of evidence that men have higher levels of financial literacy and are more likely to

have a higher propensity to save compared to females (Harris et al., 2002; Alessie et al.,

1995). In explaining gender as a determinant of saving, Birdstall et.al (1990) reported that

rural women spend most of their income immediately on household needs and often have to

make up deficiencies of what their husbands provided for them. Women also use their

24
income to meet a variety of household and personal expenses and thus are left with little or

nothing to save. Widows, for instance, inherit the responsibility of training the children and

attending to other family problems and therefore pay little or no attention to future saving.

Schmidt and Sevak (2006) reasoned that the lower earnings and savings of women in the US

had made them financially dependent on men for financial security. Denizer et.al (2000), on

the other hand, noted that household headed by women exhibit significantly higher savings

rate than that of men.

Additionally, the household size is an important indicative of saving capabilities of

the household. Households with more children are more likely to incur higher levels of

family expenditures to support all members in the family and accordingly the propensity to

save will be lower. Studies by Kelley and Schmidt (1996), Muradoglu and Taskin (1996),

Masson, Bayoumi and Samiei (1998), Bloom and Williamson (1998), Loayza and Shankar

(2000), Gardiol (2004)and Orbeta (2006) indicate that larger family size and larger number of

children in the family reduces the saving of the households. However, in developing

countries due to large family size, the intergenerational links are particularly strong, which

lengthen the effective planning horizon of households (Gersovitz, 1998) and reduce the need

for saving for retirement or for intergenerational transfer (Deaton, 1991).

2.2.3 Institutional issues and saving behaviour

A well-developed financial system plays a major role in mobilizing saving and

investment as well as allocating resources more efficiently. The neo-classical economists

such as McKinnon and Shaw (1973) argued that if wider varieties of vehicles for financial

savings were offered and if the real interest rates of bank deposits were positive, households

would increase their saving ratio. According to them, positive interest rate on bank deposit

will encourage financial saving. This will enable financial institutions to lend more money for

25
productive investment. In other words, saving creates its own investments. King and Levine

(1993) say if capital markets and financial institutions were deeper, both savings and

investment would increase. This is an important phenomenon since the capital markets and

financial institutions in developing countries are underdeveloped. Financial sector stimulates

economic growth of a country (Schumpeter, 1911). Many researchers empirically illustrated

the close relationship between financial development and economic growth (Goldsmith, 1969

and King and Levine, 1993). Greenwood and Smith (1994) showed that financial

development has dual effect on economic growth. The development of domestic financial

markets may enhance the efficiency of capital accumulation on the one hand and on the other

financial intermediation can contribute to raise the saving rate.

In developing countries the rural financial markets are generally imperfect (Yadav

et.al, 1992). This imperfection generally affects economic performance of these countries,

especially on saving and borrowing behavior and technical efficiency of farm households.

The saving ratio is positively related to the rate of domestic inflation as long as inflation is

valid but negatively related if inflation is excessive (Thirwall, 1974). The inefficient financial

markets in developing countries always lead to accumulation of financial wealth. As the

accumulated financial wealth negatively affects saving, the developing countries have lower

saving rate that the developed countries where the financial markets are efficient (Muradoglu

and Taskin, 1996).

Access to institutions is one of the most important institutional factors influencing

savings in any rural society (Fisher, 1989). Rural savings mobilization requires an

institutional network which proves easy access to potential savers. The significance of this

factor is shown by the widespread use of informal arrangements of saving in the rural society.

If institutions are within the easy reach of farmers, they tend to make use of them, ceteris

paribus. The absence of institutions collecting deposits from the rural sector may simply

26
discourage any desire to earn more or encourage consumption and perhaps wasteful

expenditure or it may lead to saving in forms which are not useful to the society. In fact, the

less developed a country’s rural sector, the greater is the need for institutional mechanism to

collect small savings of the broad mass of farmers in the sector. Majumdar et.al (1980) in

their analysis of the high saving phase of the Indian economy found that the institutional

infrastructure involving increased geographical and functional coverage through rapid branch

expansion of commercial banks and establishment of regional rural banks has provided the

base for high mobilization of saving. The saving behavior of farm households are mostly

affected by factors related more to incentives and opportunities to save than to ability to save

(Komicha et.al, 2007), Pederson (2003) have analyzed the impact of financial deepening,

availability of financial institutions and instruments on the mobilization of household saving.

Lack of availability of financial institutions and asymmetric information deter the financial

institutions from providing sufficient lending to farm households. This unavailability of

adequate credit results in precautionary saving to maintain a constant level of consumption

and deters adequate investment (Deaton, 1992).

In the context of financial deepening, the location of the financial institutions is also

considered to be influencing saving behaviour of the households. If the transaction costs are

high per unit of deposit, it will discourage people from using the formal facilities. They may

turn to informal arrangements. Minimum deposit requirements, restrictions on withdrawal

amount and more importantly, the transport costs involved in reaching the institutions are

important explicit expenditure components in transaction costs. World Bank (1993) pointed

out that postal run saving schemes lowered transaction cost for disadvantaged savers and

provided relatively safer avenue for investment and helped in fostering the mobilization of

saving in money in East Asian Countries.

27
 The appropriateness of savings instruments and procedures offered by institutions

determines the willingness to save with the institutions. The safety of savings and the

confidence in institutions appear to be dominant factors in financial savings with institutions.

Lack of confidence and perceived safety tends to dampen financial savings among many rural

households (Mauri, 1977; Gonzalez-Vega, 1986). Similarly, the procedures adopted by the

institutions such as lengthy form filling, non-use of local languages and other formalities may

simply discourage rural households from saving with formal institutions (Mauri,1985).

2.3 Estimation of Saving in India (At Macro Level):

Gross Domestic Savings (GDS) of the Indian economy comprises savings of public

sector, private corporate and household sector. In India, it is the household sector which

occupies a position of dominance over the institutional sectors like private corporate sector

and the public sector in terms of generating savings. In the recent period, the high growth

performance of the Indian economy is driven by rise in savings and investment. The buoyant

trend in the gross domestic savings is powered by savings in household sector until recent

past, more recently by the corporate sector and the public sector.

Table 2.1: Gross Domestic Saving Rate and its Components as % of GDP

(at Current Market Price)

Year Household Sector Private Corporate Public GDS

Physical Financial Total Sector Sector Total

1950 4.7 1.9 6.6 1.0 2.0 9.7

1960 4.9 2.7 7.6 1.5 3.2 12.3

1970 6.9 4.5 11.4 1.7 4.2 17.2

28
1980 6.8 6.7 13.5 1.7 3.7 19.0

1990 7.8 9.9 17.7 3.8 1.5 23.0

2000 12.3 10.8 23.1 6.3 1.2 30.6

2007-08 10.8 11.6 22.4 9.4 5.0 36.8

2008-09 13.5 10.1 23.6 7.4 1.0 32.0

2009-10 13.2 12.0 25.2 8.4 0.2 33.7

2010-11 13.2 9.9 23.1 8.0 2.6 33.7

2011-12 15.8 7.0 22.8 7.3 1.2 31.3

2012-13 14.8 7.1 21.9 7.1 1.2 30.1

Source: (i) Central Statistical Organization (CSO)

(ii) Economic Survey 2013-14

The rate of Gross Domestic Saving (GDS) i.e.; GDS as a proportion of Gross

Domestic Product at current market price (GDPCMP) has more than doubled from an

average of 10 percent in 1950s to 23.0 percent in the 1990s. It again increased from 29.0

percent in 2003- 04, the highest achieved till then, to 36.8 percent in 2007-08, which still

remains the historic peak. From a high of 36.8 percent, the gross saving rate fell by 6.7

percent point of the GDP in 2012-13. Analyzing the major components of GDS, it may be

noted that household sector is the major contributor to GDS accounting for 6.6 percent in

1950s, increasing to 17.7 percent in 1990s. The household savings rate had stabilized around

an average of 23 percent of the GDP between 2000-01 and 2006-07 and started fluctuating

thereafter. It again stood at 25.2 percent of GDP in 2009-10, which still remains the historic

peak. Private corporate sector contributed 1.0 percent in 1950s, its share improved to 3.8

percent in 1990s. Thereafter, there was sharp increase in the corporate sector saving reaching

a high level of 9.4 percent of GDP in 2007-08. This was primarily due to the introduction of

29
economic reforms introduced in 1991 which provided a fillip to corporate sector savings.

Public sector savings which was 2.0 percent in 1950s improved to 4.2 percent in 1970s.

Thereafter, it indicated a decline to 1.2 percent in 2000s. This might be attributed to several

factors like declining efficiency of the public sector; shifting of the public sector unit to the

private sector; and reforms initiated in the public sector units. However, reforms initiated in

the public sector units helped in making them more accountable and efficient. The saving rate

of the public sector, as a result, increased to 5 percent in 2007-08. Some decline thereafter

can be attributed to slowdown in the economy.

2.3.1 Household savings in India

Different households have different reasons for keeping away money as savings

ranging from emergencies to marriages and social events, children’s education and gifts. It is

well known that households are the largest savers in the economy. The household savings in

India can be broadly classified into two categories-

Savings in physical properties

Savings in financial instruments or financial household savings

Households maintain savings in the form of financial savings which include currency and

bank deposits, shares and debentures, life insurance, provident and pension funds, etc.

Physical savings are in the form of construction of houses and equipment in possession of

households. Data given in table 1 indicates the trends in the growth of financial and physical

savings. In 1950s, with a very underdeveloped capital and money market, the share of

financial savings in the total household savings was only 1.9 percent of GDP and bulk of the

savings were undertaken in the form of physical assets. The situation changed by 1980s, the

financial savings as a proportion of total savings accounted for 49 percent of total household

saving. This was due to the rapid expansion of banking in the rural areas after bank

nationalization and a larger increase in the employment in the organized labour market

30
contributing to provident and pension fund. It, however, fell down to 30.7 percent in 2011-12

and 32.42 percent in 2012-13. The share of financial saving in GDS also increased from 20

percent in 1950s to 22 percent in 1960s. By 1990s, its share in GDS doubled to around 43

percent. In the post-2000, however, its share registered a decline. Although both financial and

physical savings have recorded an increase, the composition of household savings has been a

shift in favor of financial savings reflecting the spread of banking and financial services

across the country. The share of household savings in physical assets in the total household

saving declined from more than 71 percent in the 1950s to around 44 percent in 1990s.

However, since 2000-01, the household sector has shown some preference for savings in the

form of physical assets, which could be attributed partly to the soft interest rate regime in

recent years, substantial growth in self-employment giving rise to a large number of informal

sector activities as well as the rising expectation arising from rapid appreciation of the value

of investment in housing. The ongoing financial deepening is facilitating larger access of

bank credit for households. As a result, household financial savings have increased only

marginally from an average of 10.8 percent in 2000s to 11.6 percent in 2007-08 and 12 with

increased availability of housing finance, household sector’s investment rate (physical

savings) increased from 12.3 percent in 2000s to 15.8 percent in 2011-12.

Table 2.2: Component of Household Financial saving

(% share in Gross Financial Savings)

Components 1970s 1980s 1990s 2000s 2000-05 2005-11

A) Non- 68.2 71.8 68.3 70.8 71.0 70.0

contractual

1. Currency 13.9 11.9 10.3 9.6 8.9 10.7

2. Bank deposits 45.6 40.3 34.7 44.7 37.8 49.9

3. Non-bank 3.0 4.6 6.8 1.3 2.0 1.7

31
 deposit

4. Shares & 1.5 3.9 7.0 4.1 2.8 4.3

debentures

5. Claims on Govt. 4.2 11.1 9.5 11.1 19.5 3.5

B) Contractual 31.8 28.1 31.7 29.2 29.0 30.0

6. Life insurance 9.0 7.5 10.1 17.3 14.7 19.9

fund

7. Provident & 19.6 17.5 18.8 12.4 15.1 10.3

pension

8. Units and UPI 0.5 2.2 3.8 -0.5 -0.9 -0.2

9. Trade debt (Net) 2.7 0.9 -1.0 0.0 0.0 0.4

Total Financial 100.0 100.0 100.0 100.0 100.0 100.0

Saving (A+B)

Source: Handbook of Statistics on Indian Economy, 2010-11

Analysis of the period 1970-71 to 2010-11 reveals that non-contractual savings have

risen during 2000-2005 and reached a level of 71.0 percent as against 68.3 percent in 1990s.

Bank deposits constitute the largest proportion in household financial savings. Although, non

–banking deposits sharply rose from 3 percent in 1970s to 6.8 percent during 1990s, but

people are losing faith in then and shifting to bank deposits whose share shot up to 49.9

percent during 2005-11 from a low level of 33 percent during 1991-92 to 1996-97. Among

non-contractual savings, there was a sharp increase in claims on Government from a low

level of 4.2 percent during the 1970s rising to a level of 19.5 percent during 2000-05. But that

was short lived and it declined to 3.5 percent in 2005-11.

32
 The major contributors of contractual savings are Life Insurance Funds, Provident

and Pension Funds. With the greater enlargement of the life insurance, its share has gradually

improved from 9 percent during 1970s to 19.9 percent in 2005-11. But the share of provident

and pension funds has come down significantly from 19.6 percent during 1970s to 10.3

percent during 2005-11. This is due to the policy of the government to deny the benefit of

pensions to employees appointed after 2004. The units of UTI which gained very great

popularity during 1990s accounting for 3 percent of total financial saving lost the faith of the

people after the Ketan Parekh Scam of 2001 and thus, their share became negative.

Table 2.3: Life Insurance Penetration and Density in Assam and India

Year Insurance Penetration ( in % ) Insurance Density ( in Rs. )

Assam India Assam India

2006-07 1.50 1.56 336.4 552.6

2007-08 1.62 1.73 393.3 700.7

2008-09 1.34 1.31 366.3 603.5

2009-10 1.45 1.34 460.7 700.3

2010-11 1.23 1.14 449.1 698.8

2011-12 0.96 0.78 387.5 535.1

2012-13 0.98 0.66 449.9 514.0

Source: IRDA, Annual Report 2012-13

Note: The premium data pertains to the individual business of life insurers and it does not

cover any renewal premium.

In case of life insurance business, India is ranked 10th among the 88 countries (Swiss

Re, Sigma No. 3/2013). India’s share in global life insurance market was 2.03% during 2012,

as against 2.30% in 2011. The development of insurance sector of a country can be viewed

33
from insurance penetration and insurance density of that country. While insurance penetration

is measured as the percentage of insurance premium to GDP, insurance density is calculated

as the ratio of premium to population (per capita premium). In Assam, though the rate of

insurance penetration is declining from 2006-07 to 2012-13, it is above the national level.

Moreover, the per capita insurance premium has been increasing during the last decade.

2.3.2 NCAER’s Studies

The National Council of Applied Economic Research (NCAER) is an independent

institution that engaged in substantial work on the estimates of saving in India. It has

undertaken a series of studies since 1961-62 based on both ‘indirect’ and ‘direct’ (survey)

methods. The latest survey conducted jointly by NCAER and Max New York Life (2004- 05)

on ‘How India Earns, Spends and Saves’ covering 342 towns and almost 2000 villages across

250 districts has shown the following findings:

Indian households have a strong saving habit. 81 percent of Indians save and the

average household savings are Rs. 16,139. Though India does not have a social security

scheme, saving for old age is still not a priority for its households. Nearly 83 percent of

Indian households save for emergencies. Children’s education emerges as a key priority with

81 percent households saving, 69 percent households save for old age financial security

where as 63 percent households save to meet future expenses towards marriage, birth and

other social ceremonies. Significantly, 47 percent households save to buy or build a house.

The average income of rural households is Rs 51,922 compared to Rs 95,827 for

urban households. Of this, Rs 40,124 is spent as routine and unusual expenses by rural

households and Rs 68,352 by urban households. This shows a surplus income or saving

[Surplus Income= Total household income – expenditure (routine + unusual)] of nearly 23

percent in rural households. A major portion of the surplus income (15%) is saved as cash,

while about 6 percent is saved in physical assets such as consumer goods, jewelry and so on,

34
and only 2 percent goes as financial investments. In terms of mode of saving, rural

households put nearly 45 percent of their income as bank deposits. A much higher share of

the savings is kept as liquid cash by rural households (41.7 percent).

In India Salaried households constitute only 18 percent of total households, but they

account for the highest amount of savings. Out of an average annual income of Rs 110,344, a

salary earning households saves nearly 35 percent of this income. The next high income

group, that is, those who are self-employed in non-agricultural activities, saves 32 percent.

The agricultural and labour dependent households save only 20 percent and 8 percent

respectively. Saving in the form of physical investment is more common among the

agricultural dependent (32 percent) and labour dependent (22 percent) households than those

deriving their income from salary (19 percent) or non-agricultural activities (20 percent).

Age, as a demographic factor, shows some important results. According to this study,

annual household saving was Rs.8515 when the age of the chief earning member was less

than 25 years. It increased to Rs.13465 when the average age of chief earning member

increased to 26-35 year. The highest annual saving was Rs.21196 when the age of chief

earning member was in the range of 56-65 years. However, beyond this age, the average

annual saving goes down to Rs. 17011. The average household saving was Rs.16139 for all

age groups.

In India about 45 percent of total population lives in low income states and another

onethird in middle income states, it is the high income states that account for the largest

savings in the country. The average income of households in high income states is Rs 89,288

of which around 37 percent is saved. In absolute terms, the households in high income states

save more than four times the amount saved by households in the low income states and

nearly twice than that saved by households in the middle income states. In terms of share of

surplus income to earnings, the households in low income states save just 15 percent of their

35
income compared to 25 percent saving by their counterparts in middle income states.

Households of high income states deposit 55 percent of their cash savings in bank accounts

while in low and middle income states, this figure stands at 50 percent.

2.4 Motivating Factors of Saving:

Human needs are unlimited and means are limited. If one need is fulfilled another will

take place and drive the human being to fulfill it. The driving factor is motivation. It emerges

by a state of tension, stress in the mind, which exists as the result of an unfulfilled needs.

These needs keep changing constantly at all times in each stage of life of an individual which

also varies with another individual. The Need Hierarchical theory of Maslow (1954) theory

postulates that basic levels of human needs ranges from low-level (biogenic) needs to higher

level (psychogenic) needs. Saving money is said to be directly related in satisfying needs.

The act of saving is necessary to satisfy different needs in human life viz., education and

marriages of the children, support in old age, to face emergencies or to pay off debt etc. It is

important to note that most of the motives for saving are not necessarily mutually exclusive

or competitive but rather complementary.

The theme of saving motivation was firstly discussed by Keynes (1936). He identified

eight different motives which induce individuals to save: (a) ‘Precaution’, which implies

building up a reserve against unforeseen contingencies; (b) ‘Foresight’, which means to

provide reserves for old age, children’s education, maintenance of dependents; (c)

‘Calculation’, which refers to earn interest and enjoy capital gains; (d) ‘Improvement’, which

means to enjoy a gradually improving standard of life; (e) ‘Independence’, which refers to

enjoy power to do things independently; (f) ‘Enterprise’, which means to have funds to carry

out speculative or business projects; (g) ‘Pride’, which concerns leaving money to heirs; (h)

‘Avarice’, or pure miserliness. Browning and Lusardi (1996) added the ninth one which is to

36
accumulate deposits with a view to buy vehicles and other durables (the down-payment

motive).

NCAER (1964) made a survey on “Attitude towards and Motivations for savings” by

listing possible motives into nine categories, found that the strongest motive for saving is the

desire to make provision for emergencies, followed by saving for old age and for education of

children. The marriage of children, investment in business, purchasing a house appears to be

less common motive for saving. Further, it is also found that among motives provision for

emergency, old age, wedding, purchase of house occur with about the same frequency in all

occupational and educational groups within the urban household sector. On the other hand,

saving for child’s education and purchase of durable goods seemed to be relatively more

important motives for saving among the top occupational groups and educational groups.

Improving or enlarging a business or farm is a motive for saving most frequently among the

business and managerial class and farmers.

A study conducted by NCAER-Max New York Life on ‘How India Earns, Spends and

Saves’ with an objective to examine the sources of income, occupation and saving pattern

and the motives to save, shows that 81 percent of Indian households keep their earnings at

home, right from labours to large land owners and salaried individuals. Further, saving for

old age is not the most important factor for setting aside some cash, though India does not

have a social security system. Interestingly, 83 percent of the households surveyed saved for

emergency, while 81 percent for child’s education. Only 69 percent households saved for old

age financially security, while 63 percent households kept aside money to meet future

expenses like marriage, births and other social ceremonies. Nearly 47 percent households

saved to buy or build a house and a similar percentage saved to improve or enlarge their

business. Only 22 percent households saved to buy consumer durable and 18 percent for

meeting expenses towards gifts, donation and pilgrimage.

37
 Many scholars from different parts of the world have conducted different studies

using different methodologies on the savings habit of people in various countries and outlined

different savings motives. Kolikoff (1989) revealed that about 30 percent of family saving in

the United States can be explained by motives of a precautionary nature, in particular by

anxieties about old age. From other studies conducted in Holland (Alessie et al., 1995) and in

Sweden (Lindquist et al., 1978), it emerges that the precautionary motive is one of the most

important reasons for saving. Johnson (1999), in a study carried out on refugees of Asiatic

origins, revealed that this group saves mainly for emergencies and their children’s education.

Horioka and Watanabe (1997) revealed that Japanese families save mainly for retirement and

for precautionary reasons, which is consistent with the life cycle hypothesis. Joseph (1997) in

a study on saving pattern of the people and the impact of insurance on savings at

Tiruchirappalli found that the requirement for education, marriage, building construction and

medical expense are the major reasons for saving. In a study made by Yingyi Qian (1988) in

China on saving behavior of urban and rural households found that the motives for saving in

case of urban households is for consumer durables and for children’s marriage but not for

retirement and housing as these are provided by the employing units. In the rural areas, in

contrast, income is less stable, depending on the weather and management of production.

Housing and pension funds are provided by the farmers themselves and thus housing in rural

areas have accounted for the bulk of the increase in Chinese household savings.

38
 Chapter-III

Socio Economic Characteristics and Determinants of Saving

Behaviour of Rural Households in Uzirarchar G.P

3.0. Introduction

The present chapter analyses the socio economic characteristics and the pattern of

saving behaviour of rural households in Uzirarchar. The saving pattern of the rural

households in Uzirarchar depends upon the income, occupation, consumption expenditure,

family size and other demographic characteristics. The saving rate also depends upon the

availability and easy access of the financial institutions nearby. Many of the social

characteristics like education, religion, tradition, superstitious beliefs and gender ratio affect

the saving rate of the rural households. Most of the rural households have very less income

for which they are incapable of saving. Almost 50 percent of the total rural population

doesn’t save because of low income and lack of awareness about the saving opportunities and

facilities available to them.

The setting of livelihood in the rural areas is to a great extent reflected in the socio

economic factors of households, which in turn persuade the households’ economic behaviour.

Social institutions and government policies need to adapt to changing saving trends to cater

for an ever increasing demand for the needs of the present economic situation. However,

together with income trends, the saving behaviour of the population is increasingly seen as an

important component of the demographic profile and a gradually changing pattern in the

income and saving structure warrants thorough investigation of the saving population, as well

as the long term implications of these trends.

39
 3.1. Demographic Characteristics

The demographic characteristics include the income, consumption and saving pattern

of the society. A number of factors affect these characteristics. The population, number of

dependents, education, occupation, the size of the family, income, age composition etc has a

direct impact on the saving pattern of the society or community as a whole. The importance

of saving reveals that it is important for children’s education, children’s marriage, medical

expenses, scarcity of grains, social security purpose, precaution for natural calamity like

flood, drought etc. The present study has been conducted by taking the sample of 80

households from the selected villages like Uzirarchar, Moukhowachar, Saysimana, and

Bhuyapara from panchayat of Uzirarchar district of Barpeta. Each of these villages consist of

their own socio-economic, cultural and traditional or ethnicity conditions. Hence, the samples

selected also tell about the socio-economic features and these features or specifications are

shown in the following table.3.1.

Table 3.1: Socio-Economic Indicator of the Sample Village

Village Gram District Block Population Literac Main

Name Panchayat (Head y Rate Occupation

Count)

Uzirarchar Uzirarchar Barpeta Mandia 370 54% Agri, Bussn

Moukhowachar Uzirarchar Barpeta Mandia 410 38% Labor,Agri

Saysimana Uzirarchar Barpeta Mandia 320 48% Agri,Bussn

Bhuyapara Uzirarchar Barpeta Mandia 230 42% Agriculture

Source: Survey Data UzirarChar G.P office.

40
3.1.1 Age Group

Table 3.2: Age Group of Household Heads

Age group No. of respondents Percentage

20-30 9 11.25%

30-40 20 25%

40-50 34 42.5%

50-60 12 15%

60 & Above 5 6.25%

Total 80 100%

Source: Field survey, 2021

Age group

6% 11%
15%
20-30
25%
30-40
40-50

43% 50-60
60& Above

Source: Table 3.2

Chart 3.2: Age group

Interpretation: From the above table and diagram it is shows that the majority of the

respondents age group in between 40-50 i.e. 43%, where as 25% of the respondents age

group in between 30-40 and only 6% respondents belong to 60 & above age groups.

41
3.1.2 Gender

Table 3.3: Gender of the respondents

Gender No. of respondents Percentage

Male 58 72.5%

Female 22 27.5%

Total 80 100%

Source: Field survey, 2021

Gender

28%

Male

72% Female

Source: Table 3.3

Chart 3.3: Age group of the respondents

Interpretation: Out of the sample households taken for the study 72% are male and 28% are

female. The sex of the head of the household emphasizes the impact of saving as it is soon

that the male population are more and suppose to involve themselves in different

occupational status are inclined to save more. The sex of the population determines the

income to as larger extent as the wage paid to male population is more than that of female

population which is again revels the difference in the savings behaviour of household.

42
3. Marital Status of the Respondents

Table 3.4: Marital Status

Marital Status No. of Households Percentage

Unmarried 14 17.5%

Married 56 70%

Divorced 3 3.75%

Widowed 7 8.75%

Total 80 100%

Source: Field Survey, 2021

Widowed

Divorced

Married

Unmarried

0 10 20 30 40 50 60

Source: Table 3.4

Chart 3.4: Marital Status of Respondents

Interpretation: From the above table and bar diagram it is clear that the most of the

respondents are married i.e 70% and 17.5% of the respondents are Unmarried, where a few of

respondents are widowed and divorced. The marital status of the respondents and the head of

the households also determine the saving behaviour of the rural households.

43
3.1.5 Level of Education

Table 3.5: Educational Qualification

Level of Education No. Of Households Percentage

Illiterate 37 46.25%

Primary 12 15%

Secondary 15 18.75%

Graduate 8 10%

Post graduate 4 5%

Diploma & other 4 5%

Total 80 100%

Source: Field Survey, 2021

Educational qualification

5%
10%
5% Illiterate
46%
19% Primary

15% Secondary
Graduate
Post graduate
Diploma& Other

Source: Table 3.5

Chart 3.5: Educational Qualification of the respondents.

Interpretation: The level of education of the household and other members of the family also

influences the saving behaviour of the rural households. The education of the head household

44
determines the occupation standard of the households. The education of the female member

in the household also significances or justifies the savings preference of the household. As

the level of education is one of the deciding factors of the employment in which one is

engage in. In general, those with higher education are engaged in higher income occupations.

Among the different occupation groups, the paid groups have more edification compared to

the groups with having primary education and those of illiterate. Some of those who are

employed in self–employment activities is non-firm sector have primary education. Above

the diagram shows that almost 46 percent of the households are illiterate, 18.75 percent have

achieved secondary education, 15 percent have attained primary education, 10 percent have

done graduate and 5 percent have done postgraduate and another 5 percent have diploma and

other special qualification.

3.1.5 Occupation Groups

Table 3.6: Primary occupation of the respondents

Occupation Groups No. Of Households Percentage

Agriculture 37 46.25%

Labour & daily worker 15 18.75%

Service 8 10%

Business 13 16.25%

Others 7 8.75%

Total 80 100%

Source: Field survey, 2021

45
 Primary Occupation

Others
Business 9%
16%
Agriculture
46%

Service
10%

Labour& Daily
worker
19%

Source: Table 3.6

Chart 3.6: Primary Occupation of the Households

Interpretation: The selected sample represented the population including different

occupational groups where there are agriculture, labour and daily workers, service holders,

business persons and other units also as shown in the chart 3.6. The study showed that the

main occupation consists of agriculture and daily labours. The occupation of the head of the

households is considered as the main occupation of the family as many of the occupation

category lies by the ancestral occupation like mostly the agriculture. Around 46 percent of the

respondents are belongs to agriculture and 19 percent of households are belongs to daily

labour. Where the 16 percent respondents are service holder, 16 percent are businessman and

9 percent belongs to other categories.

46
3.2 Income and Savings Behaviour of the Rural Households

Income is an important determinant of the saving behaviour of the rural households.

Income is a positive factor that analyses the savings of a country or a household. The rural

households experience a very low level of income as many of the rural families earn their

livelihoods from the agriculture, many are daily wage workers, petty traders and other self –

employed activities. The level of income is very low but the marginal propensity to consume

is very high among these categories of people. So, the saving rates of those households are

very low. Or many people do not save all. To know the saving behaviour and the saving

pattern of these households, data from 80 households are taken on different aspect of savings

to estimate the level and awareness of savings of those people.

3.2.1 Approximate Income towards Savings

Table 3.7: Approximate Income towards saving of Householders

Income Group No. Of No. of No. of non Percentage Percentage

(Monthly, Rs) Households Saving Saving of savings of non

households households households Savings

000 – 10,000 14 5 9 35.71% 64.28%

10,000 – 20,000 33 20 13 60.60% 39.40%

20,000 – 30,000 18 15 3 83.33% 16.66%

30,000 – 40,000 7 6 1 85.71% 14.28%

40,000 – 50,000 4 2 2 50% 50%

50,000& Above 4 2 2 50% 50%

Total 80 50 30 62.5% 37.5%

Source: Field Survey, 2021

47
 35

30

25

20
No. of households

15 Savings
Non-savings
10

0
000 - 10,000 - 20,000 - 30,000 - 40,000 - 50,000&
10,000 20,000 30,000 40,000 50,000 Above

Source: Table 3.7

Chart 3.7: Approximate Income towards saving of Householders

Interpretation: Above the table and diagram it is clearly shows that the out of 80 respondents

50 respondents are save their income i.e. 62.5% of the total respondents and the remaining 30

respondents i.e. 37.5% they are not save their income. It also shows that the 30,000-40,000

level of income group of households are highly save their income i.e. 85.71% and 0 to 10,000

level of income group of households less save their income.

3.2.2 Savings awareness

Table 3.8: Saving awareness of rural householders

Response No. of respondents Percentage

Yes 57 71.25%

No 23 28.75%

Total 80 100%

Source: Field survey, 2021

48
 Savings awareness

29%

Yes
71% No

Source: Table 3.8

Chart 3.8: Saving awareness of rural householders

Interpretation:

From the above table and diagram it is clearly shows that 71% of the total respondents are

aware about the savings and the remaining part of the total respondents i.e. 29% of

respondents does not aware about savings.

3.2.3 Different Age Groups towards Savings

Table 3.9: Different age group towards saving

Age group No of No. of No. of Percentage Percentage

households saving non-saving on savings of non-
households households saving

20 – 30 9 4 5 44.44% 55.55%
30 - 40 20 12 8 60% 40%
40 - 50 34 28 6 82.35% 17.64%

50 - 60 12 5 7 41.67% 58.33%

60& 5 1 4 20% 80%

Above
Total 80 50 30 62.5% 37.5%

Source: Field survey, 2021

49
 Different age group towards saving
Non-Savings Savings No. of Households

4
60& Above 1
5

7
50 - 60 5
12

6
40 - 50 28
34

8
30 - 40 12
20

5
20 - 30 4
9

Source: Table 3.9

Chart 3.9: Different age groups toward savings

Interpretation:

From the above table and bar diagram (Table 3.9) it is clearly shows that the 62.5% of the

total households saves their income and 37.5% of the households are not save their income.

This study clearly shows that 40-50 age groups of households are mostly save their income

i.e. 82.35% , whereas 60 & above age groups of respondents very low level of save their

income i.e. 20%.

50
 Chapter – IV

INFLUENCE FACTORS AND FORMS OF SAVINGS OF

RURAL HOUSEHOLDS

4.0 Introduction:

Previous chapter clearly discuss of socio economic status and savings behaviour

of the rural households and in this chapter will explore the different influence factor of

savings and forms of savings. There are a number of determinants of saving. The level of

savings depends on various factors such as income, interest rate, fiscal factors, demographics

factors as well as psychological, cultural and social factors. Most of the time households

always try to save their money in several forms of financial assets both in the formal as well

as informal financial institutions. For instance, individuals keep the savings in the forms of

cash, deposits with different banking and non-banking companies, investment and equities,

claims on governments and private insurance fund, provident fund and pension funds and

other assets.

4.1 Determinants of factors that influence in savings behaviour of rural

households:

Table 4.1: Influence factors of savings behaviour

Influence factors No. of households Percentage

No Response 12 15%

Income& Occupation 27 33.75%

51
 Financial Institutions& interest rate 16 20%

Age& Gender 7 8.75%

Education& saving awareness 9 11.25%

Others 9 11.25%

Total 80 100%

Source: Field survey, 2021

Education& Saving Others No Respons

awarness 11% 15%
11%

Age& Gender
9%
Income&
Occupation
Financial inst.& 34%
Interest rate
20%

Source: Table 4.1 Chart 4.1: Factor influence in savings

Interpretation: The influence factor of savings has plays an important role of rural

household’s savings. The table & Chart 4.1 shows that the most of the reason in savings

sector income and occupation groups are mostly influence the rural household savings i.e.

33.75% of the total respondents and age and gender also influence savings behaviour but it is

very low i.e. 8.75%. Some of the respondents no response about this i.e. 15% and including

the others, many reason clarify by the respondents i.e. 11.24%.

52
4.2 Motivates towards Savings

Table 4.2: Different Sector motivate towards savings

Motivational factor No. of Respondents Percentage Total

Yes No Yes No Percentage

Govt. Saving scheme 16 6 20% 7.5% 27.5%

Private saving scheme 9 9 11.25% 11.25% 22.5%

Bank saving scheme 20 5 25% 6.25% 31.25%

Insurance Policy 8 4 10% 5% 15%

Others 3 0 3.75% 0% 3.75%

Total 56 24 70% 30% 100%

Source: Field survey, 2021

25
25
22
20
20 18
16

15
12
9 9
10 8
6
5
4
5 3 3
0
0
Govt. Saving Private saving Bank saving Insurance Others
scheme scheme scheme policy

Yes No Total

Source: Table 4.2

Chart 4.2: Motivation towards save by different sectors.

53
Interpretation: Motivation can be play a major roll for savings sector for growth the savings

rate of the rural householders as well as individuals. Above the table and diagram shows that

bank saving scheme mostly motivated towards savings, out of the 31% respondents 25%

respondents comments yes and remaining 6% comments No. in case of Govt. Saving scheme

out of 27.5% respondents 20% respondents comments Yes and 7.5% comments No. out of

over all respondents 70% respondents agree about motivation of savings and 30%

respondents disagree about this.

4.3 Savings preference in different Forms among the rural households

Table 4.3: Preference sector of savings by the rural households

Preference sector No. of Households Percentage

Bank 28 35%

Post Office 11 13.75%

Insurance Company 8 10%

Govt. Saving scheme 5 6.25%

At Home 24 30%

Others 4 5%

Total 80 100%

Source: Field survey, 2021

54
 Savings Forms
Others
5%
Bank
At Home
35%
30%

Post Office
14%

Govt. Saving
scheme Insurance
6% Company
10%

Source: Table 4.3

Chart 4.3: Different saving forms preference by the rural households.

Interpretation: The savings reported by the households are saved in different forms

(different type of financial institution). The saving pattern of sample households in different

forms has been shown in the table 4.3 displays the different forms of savings among the rural

people along with average saving and percentage share of households in the respective forms.

The result indicates that the major form of savings is the savings in Bank which account

about 35 percentages of the total savings of the households. And the second large saved by

the households At Home i.e. 30 percentages. In case of govt. Savings scheme a low level of

households are saved their income.

55
 CHAPTER-V

SUMMARY OF FINDINGS, RECOMENDATION AND CONCLUSION

5.1 SUMMARY OF FINDINGS

1. The present study “savings habit of rural household of Uzirarchar G.P.” found that the

literacy rate in this area 53.75%, most of the respondents belongs to secondary level of

education and the percentage of illiterate i.e. 46.25% and most of the householder engaged

with agriculture sector. This study carried out 65% of the householder belongs to cultivation

and daily workers. Also this study observes the income and savings pattern of the household

and a role creates age group of the respondents. Average income of the respondents is Rs.

12,000 per month.

2. According to this study most of the householders are aware about savings i.e. 71.25%. And

also this study finds out the savings rate of rural householder is 62.5%.

3. The present study find out income towards savings most of the householder save their

income when their income level is growth up to Rs. 30,000 to 40,000 at this stage respondent

are very interested to save their income, this study carried out 85% of the respondents save

their income in this stage. And below 10,000 income groups of respondents savings rate is

very low.

4. This study shows that the savings attitude as per age group. The maximum savings rate of

as per investigation is 42.5% in the stage of 40 to 50 age groups of the householder. And 60

& above age group level of respondents savings attitude is very low i.e. 6.5%.

56
5. The study also reveals that medical emergency and child education are the prime

motivation for savings among the household flowed by child marriage, old age and better

standard of living the different motivating savings scheme provided by the government

savings schemes, bank savings schemes and other motivated financial institutions. Most of

the householder response for their motivational factor for savings is bank and government

savings schemes.

6. The determinants of the influence factors of rural households saving, this study find out

that income, age, occupation, financial institution, interest rate, education and some other

factor are influence about savings. Mostly income and financial institution influence in rural

household savings i.e. 33.75% and 20% respectively.

7. And lastly this study finds out the savings forms of rural householders. Generally the rural

householders save their income to bank, post office, at home, insurance sector, govt. savings

scheme, local saving units, and some other institution like mutual fund, SHG, etc. In this

study shows that most of the rural households prefer bank for saving i.e. 35%. And secondly

they choose at home base savings and post office.

5.2 Recommendations

Mobile banking system should be introduced by the bank in the rural areas. This

will help reduce transportation cost since the study has shown that transportation cost has a

negative impact on the probability of household to save in Uzirarchar. Bank should adjust

their interest rate on saving to make it attractive to the customers. This will help households

to benefit from saving through interest earning. Additionally, policy maker and other

stakeholders should educate household on the need to save. This will provide an in-depth

knowledge to households with no or low level of education on savings awareness of rural

households.

57
 The government should boost the income of households in the low income

bracket through transfer payment. This will increase the probability of the household to save.

The government should also create an enabling environment for business to thrive in rural

communities and this will encourage the educated to be entrepreneurial. Finally the

government should reduce taxes on agriculture logistics to encourage most of the youth in the

rural communities to invest more in the agriculture than the current situation. Procedure and

process in opening an account with financial institution should be made simple. This will

help rural households to have access to financial institution there by encouraging them to

save.

5.3 CONCLUSION:

The study attempt to investigate into the willingness of household to save have all

led to the establishment of the fact that households savings depend on the socio- economic

characteristics of rural household. Also various methodologies have been used in analysing

issue regarding household saving. Hence, the purpose of this study is to contribute knowledge

on the savings behaviour of household heads of rural communities, a case study of Uzirarchar

G.P. which determines the socio-economic development of the people. The studies shown

those education income accesses to financial institution have positive impact on the

provability of householder savings in Uzirarchar. However, age, occupation, proximity and

household assets negatively influence the probability of household to save. Finally, it has

been noted that out of two major forms identified in the Uzirarchar, financial form of savings

preferred over the non-financial form of savings. This is because most of the households

confirm that their value of saving is always secure when they save in financial form.

58
 BIBLIOGRAPHY

Books:

• Kothari C R and Garg Gourav, Research Methodology and Techniques, new age

international publisher.

• Hazarika Padmalochan, Essential Statistics for Economics and Commerce, Akansha

Publishing ( 1 February 2006)

• Jones Dolores, Money Saving, Createspace Independent Pub ( 19 December 2016)

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ii) www.academicjournal.in

iii) www.researchgate.net

iv) www.managejournal.com

v) www.googlescholar.com

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