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A Study in Saving Behaviour of Urban Household in Ludhiana City

Introduction: The concept of saving plays an important role in economic analysis. During pre-independence period in India, people spend most of their on consumption and only a small amount of income was left in the form of savings. As a result saving rate was very low. Since the attainment of

Independence in 1947 the major objective of government policy has been the promotion of saving and capital formation as they are the primary instruments of economic growth. Increase in savings is used for financing the required investment, increased investment is used for increasing saving and use of increased saving for a further financing the required investment constitute the strategy of economic growth. This process may continue till saving investment return to income stabilized and there would be steady and self sustained increase in national income and economic welfare. Several empirical studies have found that the rapid development of the western economics was the result of an increasing rate of investment. And the increase in rate of investment was made possible by way of almost proportionate raise to rate of saving. Rate of saving is increasing continuously. In the year 2000-01 Household saving rates was 23.8 percent which is increasing. In year 2001-02 at was 25.5 per cent, 2002-03 it was 26.3% increased to 27.6 percent 28.0 percents in the year 200304 and 2004-05 respectively. Further saving rate increased 32.4% in 2005-06.

So, it shows continuous high saving rate. Although Indias saving rate appears to be fairly high, yet it comparison with a number of Asian counties the rate is much lower. Meaning: Saving is the difference between income and consumption S=YC. Saving means consuming less in the present in order to consume more in the future. The amount of percentage of income saved varies from family to family and within the same family at different stages of life cycles. Saving is also affected according to the future needs of family source and the amount of family income, education of the family. Accordingly to Sarna (1979) urban and rural people save about 22 percent and 16 percent respectively. So, saving is the secret of economic betterment and economic aid to the success and happiness of a family. Economic prosperity of a family through savings can be achieved by careful planning. Saving behaviour is affected by a large number of socioeconomic factors such as income, age, education of the chief earner and family size of household etc.

Attitude towards Saving It is found that majority of household (97-98%) at all income levels seemed to feel that saving is desirable and they should save. Less than 2% of urban households at all income levels indicated that it was not desirable

to save. The motives which lead the households to express a desire to save can be grouped into nine categories. These were as follows: 1. 2. 3. 4. 5. Saving for emergencies Saving for old age Saving for gifts, donations and pilgrimages Saving for dowries, wedding and other ceremonies Saving to buy large consumer goods-like car, AC, refrigerator, motor cycle or scooter. 6. 7. 8. 9. Saving to improve or enlarge business. Saving for education of children Saving to buy or build a house Saving to help the country or compulsory saving for exemption of tax There is direct correlation between number regularly saving and education of head of the household. This indicates better prospectus for more households saving in India along with the use in number of more educated people. Now attitude of households is towards keeping cash at home or in bank, purchases of gold and National Saving certificates, life Insurance policies or mutual funds etc. The preferences for financial assets, especially bank deposits and small saving, while it rises it markedly with business investment declines somewhat with education but rises with income. It might also be pointed out that with the rise in level of education these appears an increase in the popularity of investment for increasing the standard of living and of

education as reflected by desire to spend the available saving on education and consumer durable goods. Profitability is the most important motive

determining saving preference. Safety in another significant consideration and liquidity ranks third.

Method for Encouraging Financial Saving There are six principal techniques employed by government to encourage financial saving: 1. 2. 3. Improving the rate of return on Financial saving. Facilitating contractual savings arrangements. Linking the promotion of Financial saving with other social objectives such as encouragement of more widespread home ownership. 4. Providing greater choice of savings media and greater convenience to savers. 5. 6. Assuring solvency of savings institutions and savings media. Protecting saving against loss of value from inflation. At least three methods of increasing the financial incentive for household to hold financial assets can be distinguished. 1. 2. Increasing the rates of interest paid on savings. Indirectly providing higher returns for savings by granting tax exemptions to some groups to savers. 3. Paying premium for certain types of saving.

Payments of premiums are not too widespread. privileges is much more widespread.

Use of tax

Role of Financial Institutions and Instruments in the Collection of Household Savings The extent of informational efforts is a function of the extent of competition among financial institutions. All financial institutions which

collect savings, whether under public law or private law are subject to state control exercised through the appropriate organ of issuing Bank known as Supervisory Service. All credit institutes are registered in the appropriate records kept by the Supervisory Service. Furthermore, credit institutes

subject to provisions of Banking Act must follow the instructions given by the Supervisory Service. Under Article 35, the Supervisory Service has power to prescribe procedure for the elimination, reduction or regularization of any immobilization found to exist in accounts of the credit institutes themselves. The rates of interest payable to depositors on all types of deposits are governed by an agreement between the banks, signed with a view to keeping competition in this sector within the limits required by the general interest. From time to time a certain number of credit institutions with a view to attracting more deposits, have offered high rates of interests although limited to very small amount. The effect of this on aggregate level of savings has been very slight i.e. State Bank of Patiala offers 9.75 % for 3 years for

senior citizens and 9.5% for others. SBI presents premium offer 9.5% interest, 9.75% for senior citizens period 4-5 years.

Financial Institutions play an important role in the process of mobilizing savings and financial system plays a crucial role in the implementation and ultimate effectiveness of macro economic policies. Thus reforms were under way in developing countries to liberalise financial sector and improve efficiency of financial markets. Policies adopted in India, in the sphere were sweeping since 1991. Thus there was de-regulation of interest rates, reduction in pre-emption of bank funds, free entry into banking sector, removal of controls on capital issues and evolvement of institutions for better regulations and controls of the capital market. After 1991 financial sector reforms are expected to influence saving rate in the economy. Apart from the positive real interest that will result, the availability of a variety of instruments with varying degrees of risks, the availability of a variety of instruments with varying degrees of risks and maturity is bound to promote the saving in the economy. The overall impact appears an encouraging as saving as percentage of GDP rose and household saving also increased. In the year 1981-82

household saving was Rs.212225 Cr. which increased to Rs.110736 Cr. in (1991-92). The percentage of household saving to Gross Domestic saving was 67.69% in 1981-82 which rose to 76.95% in (1991-92). In the post reform period that is 1991-92 to 2001-02 Household saving is increasing. In 2000-01 amount of household saving was Rs.458215 Cr. which was 92.38% of gross

domestic saving. In the year 2001-02 Household saving was Rs.519040 Cr. percentage to household saving 96.98. There are other distressing aspects to the developments on the saving front when the sector wise saving is examined. While the average share of the private corporate sector and the household sector in the total saving in the post liberalization period increased, the share of the public sector fell perceptibly.

In order to have a birds view of the nature of the related work done and for framing the methodology for our own study. We have reviewed some relevant studies. According to Reserve Bank of India (1961) estimates of savings it was disclosed that the longest part i.e. 63 per cent of direct saving in the household sector was accounted for physical assets, and only 10 percent of savings were invested in from of provident fund. The share of saving in the form of Govt. Sector corporate and co-operate shares securities, insurance policies, Gold and Currency holding were also calculated as 6.2%, 4.4%, 2.5%, 3.4% and 8.6% respectively. The average share of savings in the form of net bank deposit was only 1.1 percent. NCAER (1962) conducted a study of income and savings behaviour of rural and urban households. It was found that 28% and 16% of households. It was found that 28% and 16% of household contributed to

provident fund and insurance respectively. The rural people hardly got any opportunity to contribute to provident fund, since most of the people were engaged in primary occupation where there was no provident line and could hardly attend to save anything. The households below Rs.3,000 of annual income were found to be dis-savers. Gulati (1963) observed that the entire rise in the level of domestic savings took place in urban household sector whose contribution to total domestic saving rose from 40 percent during 1950-51 to 60 percent during 1960-61. The peak level of domestic savings was noticed to have reached during 1955-56. The last year of the first plan and thereafter, the level declined substantially in the first two years of the second plan. In the later part of the second plan the level improved but it did not reach the 1955-56 peaks. The sector largely responsible for unsteady growth in domestic saving was again the urban household sector, while the saving of the rural household sector was estimated to be more or less, static at around 1.9% of national income. The saving propensity stayed at around 2.6%. The objective of the study was to enquire in to the causes of relatively low and stagnant rural propensity to save on the one hand, and relatively high and rising urban propensity to the other hand. Specifically, the study examined the possible relationship between

income distribution and disparities in saving rates. The rural sector in India accounted for nearly 70% of national income. If propensity to save in this sector was low, the overall level of domestic saving would not be very high. The author concluded that the urban household played an important role in the

generation of domestic saving, which was for in excess of the proportion of their contribution to national income its likely reason was that income distribution shifted in favour of the household with higher propensity to save. Zunich and Fults (1967) surveyed 294 teenagers from high school in Illinois. It was found that 32% of teenagers saved ten dollars or more 26 saved five to nine dollar, while 42% saved one to four dollars per week. Forty four percent indicated that they placed their savings in saving schemes and loan associations, 38% in banks, 11% in government saving bonds and 7% kept at house. It was further observed that 64% saved for education, 26% for future and 10% for materialistic items. During 1957-58 the urban household savings, according to Joshi (1970), continued to increase at a rate higher than that of other sectors of the Indian Economy. The marginal saving-Income ration being so high for the urban household sector, the Indian planners could rely upon the sector for the continued contribution to the total national saving. The Good performance of the continued contribution to the total national saving. The Good performance of the urban Household sector might be partly due to governments contradiction on urban areas for saving drive. Based on sample survey data pertaining to household in Amritsar Metropolitan areas Dhesi and Singh (1980) found that at a given level of income, nuclear tend to an average to save more than the extend (or the joint) families. They observed that extended household are large in size than Nuclear houses in India. Income was the major factor in the household

decision making about consumption and saving. The impact of income on all type of savings was observed to be highly significant and that marginal propensity to save was positive. Jalan (1995) examined that India has one of the highest saving rates in the developing world particularly among low income countries. Gross saving rates increase rather sharply from about 10.1% of GDP in 1951-52 to 15.3% in 1966-67 and 21.2% in 1980-81. The growth rate of national income during this entire period was however, relatively low (about 3.6% per annum). Compared with that in some fast growing countries the author also pointed out that there has been very little increase in the saving rates during 1980s. The ratio of gross domestic saving remains stagnant in the region of 21% of GDP. Consequently, the Indian experience of high performance countries in respect of roll of domestic saving in the growth process. He also pointed that the share of public sector fell after 80s and it become hazard for the development of the economy because the declining trend of public has its own serious limitation.

Objective of the Study 1. 2. 3. To study saving behaviour of Nuclear and Joint family. Forms and purposes of saving To analyse preference of saving scheme of various sections of the society.

Locale of Study

This study will be undertaken in BRS Nagar Block G and Chhawni Mohalla of Ludhiana City. These areas were selected purposively due to the following reasons: 1. All types of respondents required for the study are available in these areas. 2. 3. Investigator was well acquainted with the families living in these areas. The areas selected for study are easily approachable.

Methodology Simple averages, percentage, Karl Pearsons, Coefficient of correlation, Regression will be employed for the analysis of data. Karl resources coefficient of evaluation = N. dx.dy - dx.dy ---------------------------------------------N.dx2.(dx2)2 - Ndy2.(dy)2

References 1. Rupinder Kaur Changing Trends in Expenditure pattern and Saving Behaviour A Comparison of Single and dual earners households. (1988) PAU, Ludhiana. 2. Savita Rani A study into Saving behaviour of rural and urban families of Ludhiana District (1980) P.A.U., Ludhiana. 3. Reserve Bank of India Annual Report 2005-06.


National Council of Applied Economic Research July 1964 Attitude towards and motivation of Saving.


Origination for Economic co-operation and development 1965-1966 Formation of Savings.

6. 7.

Economic Survey 2005-2006 & 1999-2000. Saving in India Structure Growth and Forecasting 1997 G.N.D.U Amritsar.


Income and Saving in India Growth and Casual behaviour 1998 G.ND.U. Amristar.


Banking and Insurance Kaylani Publishers, Ludhiana.

Bibliography 1. K. Rajan Indian Economy the post reform scenario. Publications New Delhi. 2. Chakarvarty (1990) Overall Aspects of Saving in Real Terms Datta Roy Choudar & Begchi, (eds), Vikas Publications, New Delhi. 3. 4. Government of India Economic Survey 1999-2000. Joshi V.H. Saving Behaviour in India, Indian Economic Journal Vol 15, 1969-70. 5. Shetty S.L. and K.A. Menon (1980) Saving Investment without growth Economic and political weekly vol. 15 May 24. 6. Shetty S.L. (1990) Saving Behaviour in India in the 1980s Some Lessons Economic and political weekly vol. 25 March 17. Serials


Virmani Arvind (1990) Saving Performance and Prospects, A Historical Perspective, Datta Roy Choudhary & Begchi, (eds), Vikas Publications, New Delhi.


Rupinder Kaur Changing Trends in Expenditure pattern and Saving Behaviour A Comparison of Single and dual earners households. (1988) P.A.U., Ludhiana.


Savita Rani A study into saving behaviour of rural and urban families of Ludhiana District (1980) P.A.U., Ludhiana.

10. 11.

Reserve Bank of India Annual Report 2005-06. National Council of Applied Economic Research July 1964 Attitude towards and motivation of Saving.


Origination for Economic co-operation and development 1965-1966 Formation of Savings.

13. 14.

Economic Survey 2005-2006 & 1999-2000. Saving in India-Structure Growth and forecasting 1997 G.N.D.U Amritsar.


Income and Saving in India- Growth and Casual behaviour 1998 G.N.D.U Amritsar.


Banking and Insurance Kaylani Publishers, Ludhiana.

Journals/ Newspapers The Economic Times The Tribune

Economic and Political Weekly A Sameeksha Trust Publication, Mumbai. Banking Services Chronicle :-


I. 1. 2. 3. 4. 5. 6.

General Information: Name of Head of Family: ___________________________ Age : ___________________________________________ Sex: ____________________________________________ Education: _______________________________________ Occupation: ______________________________________ Type of Family: _______________Nuclear ____________ Joint ______

7. S. No.

Composition of the family: Name Relation to Head of family 1. 2. 3. 4. 5. 6. Age Education Occupation

7. 8.

II. 1. 2. 3.

Source of Income From business By Giving Money on Credit Services Govt. Service Private Service

Amount (Rs.) ________________________ ________________________ ________________________ ________________________ ________________________ ________________________ ________________________

4. 5. 6. III. 1. 2. 3. 4. 5.

Gifts Received from others Remittances from relatives Any other (Specify) Savings Regularly Sometimes Saving when there is specific goal Save what is left over No saving

________________________ ________________________ ________________________ ________________________ ________________________

IV. 1. 2.

Form of Savings Cash Bank Deposit Fixed Recurring ________________________ ________________________ ________________________ ________________________ ________________________ ________________________ ________________________

3. 4. 5.

Insurance Post Office Schemes Unit trust of India

6. 7. 8. 9. 10.

Shares/ Debentures Mutual Funds Jewellery Land, Farm and Farm Equipment Any other (specify)

________________________ ________________________ ________________________ ________________________ ________________________


Amount of Saving (Per month) a) b) c) d) Below Rs.500 500-1000 Rs 1000-1500 Rs More than 1500 Rs

VI a) b) c) d) VII

Importance of Saving Extremely Important Important Unimportant Extremely unimportant Attitude Towards Saving ________________________ ________________________ ________________________ ________________________ ________________________ ________________________

Desirable Undesirable VIII Selection of type of saving scheme i. ii. iii. iv. v. vi. vii. Safety of Money More interest Easy deposit Easy to withdraw Rebate to income tax Short procedure Any other (Specify)

IX i. ii. iii. iv. v. vi. vii.

Objectives before planning to save It reduces economic insecurity especially in old age. Helps in period of physical inability Useful during emergency For future use Useful for childrens educations, Marriage or career settlement Useful in making big Purchase Enhance socio-economic status Helpful in securing Loans Becomes a source of Income Maintain standard of living Good Habit Any other (specify)

viii. ix. x. xi. xii.

X. i. ii. iii. iv. v.

Do you think one should definitely save money? Definitely Should try to save Should save when need arises Should not save Any other (Specify)