A comparative analysis of rural and urban household savings behaviour in South Africa

Abstract

Saving is important in the economy as it has linkages with growth, development and sustainability. The poor average saving rate in the rural economy has restricted the capacity of rural development in South Africa. The study focuses on comparing rural and urban household savings behaviour in South Africa, using household data from the Income and Expenditure Survey (IES) for the period 2010/2011. The dynamic linear saving functions originating from the Absolute Income and Permanent Income Hypotheses were estimated separately for the different household types using the Ordinary Least Squares (OLS) method. Panel data analysis was carried out by pooling together the cross-sectional household types over the twelve-month period. The study established that urban households earn higher incomes and have more average savings than rural households in South Africa. A positive significant relationship was found to exist between current saving decisions and income across all household types in South Africa. Another interesting finding was that rural households have more marginal saving rates than urban households in the short-term and in the long-run. The Fixed Effects Model was deemed to be the best estimator in estimating saving functions across all household types in South Africa, as validated by the Hausman and Redundant Fixed Effects tests. Given that rural households have a potential to save, the study recommends increased awareness and education of rural households on the benefits of accessing basic financial services. Policy-wise, the study recommends the government to increase support in agriculture and extend the provision of food and health subsidies to rural households in South Africa.