Determinants of savings among non-Ricardian households in South Africa
International Journal of Social Economics
ISSN: 0306-8293
Article publication date: 6 October 2020
Issue publication date: 22 October 2020
Abstract
Purpose
This paper examines the determinants of savings among low-income households, regarded as non-Ricardian households (NRHs), in South Africa. NRHs comprise low-income households largely depending on government welfare benefits for sustenance. This research investigates socio-economic factors determining savings pattern of low-income households in South Africa.
Design/methodology/approach
The research makes use of the National Income Dynamics Study (NIDS) data set wave one to five. The longitudinal survey models are analysed in determining the socio-economic characteristics of NRH in South Africa. The estimators include Pooled ordinary least square (OLS), fixed and random effects methods.
Findings
The household grant contributes positively to the level of savings, but the savings level is still considerably low: majority of the low-income households have zero or negative savings. The average size of a NRH is about twice the size of the Ricardian, despite the NRHs’ debt burden impoverishing them.
Research limitations/implications
The self-perpetuated poverty problem makes every factor in the vicious cycle both cause and effect of another factor, warranting reverse causality and threatening the reliability of Pooled OLS estimates for the research.
Practical implications
The growing cost of government grant hinges on the increased level of inflation while largely depending on the number of households entering the low-income threshold.
Social implications
The study recommends that the government creates a more enabling environment for NRHs to engage in productive activities. Also they create more low-skilled jobs and encourage reduction of birth rate among low-income households; this will reduce their expenditure and increase their level of savings and will assist in pulling them out of the vicious circle of poverty. Government can boost NRHs’ savings through increase in various grants.
Originality/value
The study makes significant contribution towards addressing the unfortunate situation of household savings among low-income brackets in South Africa. The research corroborates other studies on the effectiveness of the fiscal stimulus package to boost the welfare and savings condition of NRHs in South Africa. The result explicitly confirmed the redistribution policy of the grant to the low-income household. The grant has a significant positive effect on the savings pattern of the household. An increase in it beyond the poverty threshold could indeed break the vicious circle of poverty since the effect does not only stop at expenditure but also pass through to savings, which may ultimately boost investment. Further studies should continue the investigation of grant transmission channels to investment and income.
Peer review
The peer review history for this article is available at: https://publons.com/publon/10.1108/IJSE-11-2019-0692
Keywords
Citation
De Vos, C., Obokoh, L.O. and Abiola, B.A. (2020), "Determinants of savings among non-Ricardian households in South Africa", International Journal of Social Economics, Vol. 47 No. 11, pp. 1329-1343. https://doi.org/10.1108/IJSE-11-2019-0692
Publisher
:Emerald Publishing Limited
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