Determinants Of Savings In Nigeria

Project and Seminar Material for Economics

Determinants Of Savings In Nigeria


Savings is determined by a number of financial and non-financial variables. In this study, political stability, per capita income, number of bank branches, misery index, literacy rate, interest rate spread and dependency burden were perceived to determine savings in Nigeria based on literature. 200 hundred customers of UBA, Access and Zenith Banks were interviewed using a questionnaire. Data obtained was analysed using frequencies and percentages. Also, the study finds that dependency burden significantly impacts on savings in Nigeria. This means that as the dependency burden increases, the capacity for people to save is significantly reduced. This results calls for the need to reduce household size through birth control measures. Thus, policies aimed at increasing savings vis-à-vis capital formation in Nigeria should not only dwell on financial variables but should combine both financial and non-financial variables. Specifically, it is necessary for more bank branches to be established in order to encourage savings in formal financial institutions and thereby reduce the level of financial exclusion in Nigeria.

Chapter One


1.1 Background of the Study

The place of savings in any economy including Nigeria has remained critical over the decades. This is largely due to the widely held view that adequate savings are important for capital formation and financial stability. This is more so, given the fact that capital accumulation results when some proportion of present income is saved and invested in order to augment future output and income. This view had long been echoed by the mainstream neoclassical Economists (Chenery and Strout, 1956, Domar, 1946, and Harrod, 1948 to mention but a few) who assumed that growth in economic activities are primarily and positively linked with capital formation. The low but slowly rising level of savings in Nigeria has been attributed to a lot of factors which include demographic, financial and macroeconomic variables (Chete, 1999 and Tochukwu and Odigie 2009). Nigeria, just like other developing countries, is one of the countries in Sub-Saharan Africa where high inflation exists side by side with high unemployment. This has worsened the misery or discomfort of her citizens. In 1980, the misery index was averagely 17.3 per cent. It (misery index) later reduced to 13 per cent in 1990. As at 2000, 2010 and 2014, the index went up to 18.4 per cent, 19.7 per cent and 36.5 per cent respectively (NBS, 2014).

Savings is the amount of income per time period that is not consumed by economic units. For the households, it represents that part of disposable income not spent on domestically produced or imported consumption goods and services. For the firm, it represents undistributed business profits. It is pertinent to point out that savings is flow variable, being measured overtime. Economists believe that savings and investment are necessary requirement for the growth and development of countries, therefore decline in savings will lead to decrease in investment and in turn a decline in economic growth and development of the country. (Chenery and Strout, 1956)stated that the higher the increase in the rate of investment, the greater the rate of capital formation, which eventually encourage growth and development. Economists see domestic savings as disposable income minus consumption expenditure. In other words, it is seen as income that is not used for purchasing of goods and services for the purpose of consumption. Therefore for the purpose of this study, the researcher emphasize that savings refer to deposits in financial institutions. Thus, the study focuses on financial savings of households held by banks, micro finance institutions, Esusu groups and other savings avenue. Based on the definition above it is very clear that savings has relationships with investment. Therefore savings are very important in order to increase the amount of capital available and also increase in savings is vital but not a sufficient condition for investment. Savings are strategic variable in the theory of economic growth and its role as a determinant of economic growth has been emphasized by classical economists. In many developing economies particularly Africa, savings and investments are necessary engines for capital formation hence economic growth. Sufficient savings are needed by the economy of any country in order to fund investment expenditure which will in turn boost the economic growth of such a country or else the country has no option than to borrow domestically or externally. Nonetheless, borrowing from abroad can have adverse effects on the balance of payments as these loans will have to be serviced in the future and it also carries a foreign exchange risk. So, sufficient private domestic savings are necessary for economic growth because it also forms part of the most important issues in development economics, and for developing countries, on how to stimulate investment, and how to bring about an increase in the level of savings to fund increased investment. In fact, the crucial role of domestic savings mobilization to the sustenance and reinforcement of the saving-investment-growth chain in developing countries has preoccupied development economists for decades (Chenery and Strout, 1956). Given this, the main thrust of this study is to empirically investigate the determinants of savings in the Nigerian economy. This study becomes crucial in the light of the need to provide necessary insight on how to foster rapid growth and development of the economy. Historically, there is an obvious gap between the income level and savings rate in the economy due to the inability of the economic agents to benefit from accrued revenue from oil resulting in low investment and declining rate of capital formation in Nigeria. The role of savings in the promotion of economic growth and development in both developing and developed economies today had been noted by economists. Savings are very important in order to generate fund for investment (Chenery and Strout, 1956). Nigeria is among the developing countries that need fast and sustainable increase in investment growth; however, her private domestic saving rate was on the lowest for several decades. The savings level in Nigeria particularly in rural areas is very low and its patterns and determinants arenot empirically identified. In rural areas in Nigeria, savings is mainly made out of the income from agricultural produces, the flow of the income is irregular and seasonal which reduces the ability to save or poorly respond to the incentives which promote savings (Chete, 1999 and Tochukwu and Odigie 2009)

1.1 Statement of the Problem

As is expected, a high misery index occurring side by side with a growing and dynamic population is likely to lead to very high dependency burden or ratio. The annual growth rate of the population of Nigeria is averagely 2.5 per cent while the dependency burden is averagely 0.9 per cent (NBS, 2010). This is not surprising given the geometric growth rate of the population that is not matched by corresponding gainful employment of continuously growing human population. The end result of this scenario (of increasing misery index and high demographic burden) is a drastic reduction in efficiency in the use of labour force to increase output. A reduction in output is likely to lead to inflation in the face of increasing (excess) aggregate demand resulting from population growth. All these may have dampening effects on savings. It is at this backdrop that the researcher intends to searchlight into the possible determinants of savings in Nigeria.

1.2 Objective of the Study

The general objective of this study is to find out the determinants of savings in Nigeria.

Other objectives include;

  1. To ascertain the impact of availability of banks on saving in Nigeria
  2. To ascertain the impact of political stability on saving culture in Nigeria
  3. To determine the relationship between per capital income and saving culture in Nigeria

1.3 Research Hypotheses

Hypotheses one
  • Ho: There is no relationship between per capital income and interest in saving
  • Hi: There is a relationship between per capital income and interest in saving
Hypotheses Two
  • Ho: The availability of bank branches has no effect on saving culture in Nigeria.
  • Hi: The availability of bank branches has an effect on saving culture in Nigeria.

1.5 Significance of the Study

This study on the determinants of savings in Nigeria will be of benefit to policy makers and financial institutions to know the reasons why Nigerians are not saving and the possible solution to the problem. It will also be useful to other researchers who intend to carry out similar research work.

1.6 Scope and Limitation of the Study

This study is primary concerned with determinants of savings in Nigeria. This study covers some selected customers of UBA, Zenith and Access Banks. The researcher encountered some constraints, which limited the scope of the study. These constraints include but are not limited to the following

a) Availability of Research Material:

The research material available to the researcher is insufficient, thereby limiting the study

b) Time:

The time frame allocated to the study does not enhance wider coverage as the researcher has to combine other academic activities and examinations with the study.

1.7 Definition of Terms


A determinant is a factor or cause that makes something happen or leads directly to a decision.


The portion of disposable income not spent on consumption of consumer goods but accumulated or invested directly in capital equipment.

1.8 Organization of the Study

This research work is organized in five chapters, for easy understanding, as follows

  • Chapter one is concerned with the introduction, which consist of the (overview, of the study), historical background, statement of problem, objectives of the study, research hypotheses, significance of the study, scope and limitation of the study, definition of terms and historical background of the study.
  • Chapter two highlights the theoretical framework on which the study is based, thus the review of related literature.
  • Chapter three deals on the research design and methodology adopted in the study.
  • Chapter four concentrate on the data collection and analysis and presentation of finding.
  • Chapter five gives summary, conclusion, and recommendations made of the study

Chapter Five

Summary, Conclusion and Recommendation

5.1 Introduction

It is important to ascertain that the objective of this study was to ascertain a critical analysis of determinants of savings in Nigeria.

In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations are made, which in the opinion of the researcher will be of benefit in addressing the challenges of savings in Nigeria.

5.2 Summary

This study aimed at having a critical analysis of determinant of savings in Nigeria. Three objectives were raised. These objectives include: To ascertain the impact of availability of banks on saving in Nigeria, to ascertain the impact of political stability on saving culture in Nigeria, to determine the relationship between per capital income and saving culture in Nigeria

5.3 Conclusion

Based on the above findings pertaining to the objectives of the study the following conclusions are drawn.
The study reveals that income had a positive association with savings in both urban and urban dwellers. It means that as the income increases savings among the household also increase. In other words, as the people gain more income, they will have more money to save which is also the stated function of macroeconomics: saving is the function of income. Hence, proves that holding other things constant, saving in both rural and urban areas increases as income increases.

5.4 Recommendation

The findings suggest that the government should encourage the micro finance institutions and banks to deliver credit for small scale enterprises so that the people should have employment opportunities and can enhance income which may further increase household’s savings. It is also suggested particularly for NGOs that they should have awareness and capacity building oriented program at community level regarding the importance of savings to encourage the people for saving by spending income according to their actual needs.

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