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Abstract Behavior of Savings Account Holders in Malaysia: A Preliminary Study 1 *Shabnam Mohamad Mokhtar, **Maswati Abd Talib, ***Asna

Atqa Abdullah
Accounting and Finance Department, Faculty of Economics and Management, UPM, 43400 UPM Serdang, Selangor. Tel (03) 8946 7618/7747/7635, Fax no: (03)89486188 E-mail:, * **, ***

This paper runs a preliminary analysis on behavior of savings account holders. It was set out with the objective to identify factors that motivate people to save and also to examine the relationship between the decision to transfer fund (from Islamic savings account to conventional savings account) and religion of the account holders. A cross sectional data from a survey of 135 respondents suggest that saving for emergency (precautionary motive) is the most important reason that people save for while the least important reason is to obtain return on savings account provided by the bank. Besides that, setting a monthly savings target also helps people save more regularly. A chi-square analysis suggests that the decision to transfer fund from an Islamic savings account to a conventional savings account when the conventional account pays a higher interest rate differs significantly between Muslims and non-Muslims. Majority Muslims would not transfer to conventional accounts due to religious restrictions. Besides savings motives, this study also explores two multiple regression models to predict total savings and monthly savings. None of the variables included were able to predict total savings, however income and the number of children below 18 years old had significant effects in predicting monthly saving. All the results will however have to be interpreted with prudence because the preliminary study only involves a small number of respondents. Further improvement to the survey instrument and sampling methodology are needed before results could be said to be robust and represent the behavior of savings account holders in Malaysia. Keywords: Savings behavior, Al-Wadiah, Saving motives, Bank savings

Acknowledgement: Our sincere gratitude is extended to PM Dr. Murali Sambasivan and Dr. Taufiq Hassan from FEP, UPM who have contributed in making this paper possible. Our thanks are also dedicated to the respondents who have cooperated in completing the questionnaires



Behavior of Savings Account Holders in Malaysia: A Preliminary Study 1.0 Introduction Savings decision is of importance to both an individual and a nation since savings provides an individual with financial security for possible hard times and provides a nation with a significant source of investment fund for economic development. Savings take many dimensions: public saving, private saving and household saving to name a few. Katona (1975) identified three types of savings not from an economist point view, but from an ordinary persons’ view: contractual saving (paying installments), discretionary savings (deliberate saving of spare income) and residual saving (money not yet spent and therefore saved by default). In this study we focus on discretionary and residual saving in the form of bank savings (i.e savings account). We define savings account as “money deposited at commercial banks (Maybank, BIMB,BCB,etc.) and savings institutions (Bank Simpanan Nasional, Bank Rakyat and Lembaga Tabung Haji) that could be withdrawn by the customer at any time and pays return on the amount deposited.” Therefore this study excludes other deposit accounts such as current account, fixed deposit accounts or other investment and unit trust accounts. East Asian countries including Malaysia is known for high savings rate (20-45% of GNP). According to the Central Bank’s governor Tan Sri Dato’ Dr. Zeti Akhtar Aziz, the consumption in Malaysia has increased from 56% in 1998 to 61% of GDP in 2002. The savings rate on the other hand has decreased (although remained high) from 42.2% in 1998 to 35% of GDP in 2002. She further explains that although household consumption and private investment is important to sustain domestic demand and economic development, the need to save should not be undermined. She also reminds the need for household to improve the management of their personal finance to sustain long-term financial security and living standard. (Aziz, Z.A. 2003, 2004) Various researches have been done to gain insights on savings behavior from an economic, demographic and even psychological point of view. Xiao and Noring (1994) highlights that although numerous studies have been carried out on savings behavior, only a few of these has aimed to investigate motivations for saving directly. Research on motivations to save is important because it can help financial advisors and educators to have a deeper understanding of the goals of people’s financial behavior (Canova et. al, 2005). Combining the call from Tan Sri Zeti and highlights from Xioa and Noring, we are exploring means to further understand what motivates people to save. To have a rich qualitative insight into savings motives we decided to pursue a survey of savings account holder to help us identify their savings motives. In addition, with the advent of Islamic Banking Scheme (IBS) in Malaysia, the impact of interest rate on savings is of prime importance.


and to examine the relationship between the decision to transfer fund (from Islamic to conventional facility) and religion of savings account holder. This may give a new insight on the impact of return on savings especially on the level of deposits in bank savings accounts. The investment account operates on the basis of Mudharabah (profit sharing) where capital is not guaranteed neither any prefixed returns. In short. The following section offers review of prior studies. This arises further interest for us to understand the qualitative insights of the behavior of savings account holder from both the conventional and Islamic banking facilities.The growth of Islamic Banking Scheme in Malaysia establishes use of return not predetermined upfront (compared to conventional interest rate). the main objectives of this study are twofold: to identify factors that motivate people to save. 3 . The results from the survey could be incorporated in designing an innovative savings account that will stimulate individuals to make a committed savings plan. The paper is organized into five sections. Ariff (1988) explained that Islamic banks around the world offer three main types of depository services. The final section provides conclusion of the study. current account. Haron and Ahmad (2000) analyzed the relationship between total Islamic deposits and rate of returns offered under Islamic and conventional banking schemes in Malaysia from January 1984 to December 1999 on a monthly basis. Section three describes the data collection and research methodology. They confirmed that customers who place their deposits at saving and investment account facilities are guided by profit motive since there is a negative relationship between interest rate of conventional banks and the amount deposited in interest free deposit facilities. savings account and the investment account. its implication and suggestions for future research. In addition we also explore predictive variables of total and monthly savings. The findings from this study could benefit the banking industry by identifying factors that motivate individuals to save. Section four presents the research findings and discussions. Current account and savings account operate on the basis of Wadiah Yad Dhamanah (safekeeping plus guarantee) where the nominal value of the deposit is guaranteed but provide no guarantee on returns.

Although numerous studies have been carried out on savings determinants and behaviour. The PIH. 1997. pride and avarice. In the middle cycle. permanent income and transitory income. These households are expected to accumulate small stocks of assets (buffer stock) to face short-term income fluctuations and liquidity constraints. 1994). Permanent income is the present value of lifetime income while transitory income is the difference between current income and permanent income. Lindqvist et.0 Literature Review Numerous studies have been done on the factors or determinants that affect savings. Motivation to accumulate money to use for future retirement in LCH theory proposed by Modigliani and Brumberg (1954) is an example of savings motive. precaution. The life cycle hypothesis (LCH) and the permanent income hypothesis (PIH) are the two most well known neoclassical economic theories. for serving necessities. Few claimed to save for future income or bequest motive. Upon retirement dis-saving is expected to occur. researchers have tried to establish relationship of savings with not only the economic variables. This model emphasizes saving for retirement as primary motivation for deferred consumptions or savings. particularly for younger households and for households facing greater income uncertainty. for retirement and for children’s need. assumes that long-term income is the primary determinant of consumption. enterprise.. The model is based on 2 definitions of income. foresight.2. sociological. behaviourial and demographical factors. In recent years. As savings is of interest to both the individual and the economy. improvement. Thus. The PIH predicts that household consumption will respond to changes in permanent income but not changes in transitory income. saving is expected to be positive since individuals pay their debt and save for retirement. The LCH predicts that consumption and saving reflect an individual’s stage in life cycle proxied by age. but also psychological. al. Katona (1975) found that people save for emergencies. on the other hand. Studies in Holland and Sweden (Alessie et al. Young households are expected to have negative saving because they have relatively low income and incur debt for education. Keynes (1936) was the first one to conduct research on savings motives. 1978) indicate that precautionary motive is one of the most important reasons for 4 . only a few of these have aimed to investigate motivations for saving directly (Xiao and Noring. independence. when an individual expects a temporary increase in income. she will increase her savings. Study on motivations tests directly the reasons why people save. Beverly & Sherraden (1999) made a comprehensive summary on the key theories of saving and assets accumulation. He identified eight different motives. This can help financial advisors and educators to have deeper understanding of the goals of people’s financial behaviour. if she expects a permanent increase in income she will increase her consumption. But. an alternative model called the “buffer-stock” models of saving emphasize a precautionary motive for saving. calculation. purchase of home and other expenses.

the less their total savings and the more they save. and total savings. and spending on insurance.saving. The more importance people place on achievement as value in lives. They analysed psychological. those who save regularly and have savings (savers) and those who do not save regularly but have savings (nonsavers with savings). The same goes to argument about money with partners. total savings and a liquidity estimate measured by how much of their savings people could easily use. (2000) compared the saving motives of Italian. Lindqvist did find effects on savings by income. They used discriminant analysis to distinguish between those who do not save regularly and have no savings (non-savers). The result of multiple regression on total savings and the studied variables. They save for their children’s education and for medical care. precautionary motive. Unlike recurrent savings. the more they attributed their financial problems to bad luck and the less they attributed them to occurrence of unexpected repairs. saving as a continuous habit. It is also interesting to note that the more people save. Webley et al. Lunt & Livingstone (1991) conducted an in-depth survey to 241 ordinary residents in Oxford and added another 60 respondent through snowballing technique to obtain a total of 279 workable questionnaires for analysis. However. bequest motive and profit motive. value. repayment of debts. A further 42% variance is explained by economic variables. total investments. For the English respondent. and frequency of shopping around for best buy. stage in family life-cycle. bank savings measured by changes over a three-month period in amounts saved up in the bank. English and Israeli respondent and found that Italians were more inclined to save as much as possible. discussion and economic behaviour variables (17% variation) show that the more importance people assign to enjoyment in lives. Lindqvist (1981) interviewed 429 randomly selected households in Sweden to analyze four different saving estimates. Results on attitude. He applied a stepwise multiple regression design to those variables. The results of a multiple regression indicate that saving as a continuous habit and precautionary motive explained significant variance of the total sum of money saved. spending on clothes. The results of multiple regression show that economic variables (48% variation) seem to predict recurrent (savers) but not demographic variables (0% variation). 5 . Among the significant positive economic variables are disposable income. Warneryd (1995. 1999) distinguished four motives. on the other hand. discussion about money with friends. consumer sentiment and economic activity. economic satisfaction. Only 4% of variance is explained by psychological variables. demographic variables tend to explain 11% of total savings. the less they save. show a different outcome. Both economic variables and softer variables like attitude and expectation were used as explanatory variable. The variables failed to explain bank savings. the more inclined they are to disagree with the notion that being in debt means people do not manage their money properly. social and economic variables to explain savings. disposable income. saving for future purchase was an important motivation.

Rattazzi and Webley (2005) analysed super-ordinate goals motivating decisions to save using network analysis. the performance of one’s duty towards children and the protection of the family as part of their Hindu religion concern. residence location and the secondary earner. Jain and Joy (1997) did a study involving Asian ethnic in Canada by. They found important difference in saving behavior across cohorts. education. unlike in study by Weiss et al.Canova. Burney & Khan (1992) utilized a micro-level data of the Household Income and Expenditure Survey in Pakistan to examine both the nature of income-saving relationship and the impact of various socio-economic and demographic factors on household savings including the dependency ratio. Saving. saving and investment behaviors are influenced by culture. They interviewed 36 professional South Asian (Indian) families in a metropolitan city in Canada to understand how consumption. purchase of a house. Lunt & Livingstone (1991) showed that high level of savings (total savings) are associated with participants who are male. having more children may induce a bequest motive and is expected to result in a positive dependency-saving relationship (Baharumshah et al. the result indicated that their investment decisions were focused on planning for education of children. was ‘to keep money in 6 . However. holidays and money availability) at the bottom of the hierarchy. A lot of studies have also analysed the link between demographic factors and saving. 2003). type of employment. older. secondary earner and savings. (2006). The results were 15 salient goals functioned hierarchically with concrete goals (purchase. The level effect in life cycle theory predicts that the higher the dependency ratio the lower the savings ratio. after which they explained why these reasons were important and were then asked to give further justification. Attanasio & Paiella (2001) studied the savings behavior of USA households using the micro data from Consumer Expenditure Survey from 1982 to 1995. Weiss et al. have more children. Education. occupation. They employed synthetic cohort techniques to characterize the life cycle profile of savings rate. They are important in determining savings motives. level of education. The dependency ratio was found to have a negative influence on household savings. The evidences are however mixed. They surveyed 97 British adults through questionnaire asking on personal reasons why they wanted to save. investments in jewellery and other assets. They found that participants who are African American save less than other races and participants who graduated from college save more than those who did not complete high school. level of income and asset ownership are highly associated with level of savings. They did not find any significant relationship between occupation. to them.. (2006). abstract goals (self-esteem. seems to have a negative relationship with saving since educated parents will have a higher children education expenses. selfgratification) at the top of the hierarchy and intermediate goals which channel the more concrete to the more abstract in the intermediate position of the hierarchy. which were influenced by the temporal view of life. in analysing savings determinants of low-income household with children found that race. Although the research did not directly look at savings alone. with the youngest cohort born after 1940 displaying the lowest saving rate and those born before 1930 with the highest saving rate.

They argue that individuals who have access to institutionalised mechanisms are more likely to have higher saving rates than those who lack access. and Ssewamala (2006) confirmed the previous study by Sherraden. they are more likely to engage in savings. incentives.32 increase in savings. These factors.g. They operationalized these institutional variables and found that they are highly associated with the performance of Individual Development Account (IDA). stems out from critics of LCH and PIH theories as they assume that individuals have (or act as if they have) almost-perfect vision regarding future income flows. information. However. According to Beverly and Sherraden. targeted to low-income people that provide institutional structures including incentives for savings. Schreiner and Beverly (2003). facilitation and expectations (Sherraden. match rate. Interest rates. 2003). Expectation is also another factor that may motivate household savings. namely access. First. household consumption. Interest rates or return on savings as an incentive to savings is always predicted as the determinants of savings. Beverly & Sherraden (1999) explains that an increase in return on savings would have two possible effects. Attanasio & Paiella (2001) and Athukorala & Sen (2003). and life span and that they manifest rationality and self-control as they prepare for retirement. As cited in Weiss et. 2001. psychological and social determinants. The result of study shows that each additional hour of financial education is associated with a $0. The same goes to savings incentives and facilitation. It is also important to note that besides economic. institutional variables (institutionalized saving mechanism. Wagner. and the use of direct deposits are normally considered as part of factors that gives incentives and facilitate savings. 1999). attractive saving incentives and facilitation) promote individual and household saving (Beverly & Sherraden. Given the access of low-income household to IDA.86 increase in savings and each additional dollar in monthly saving target is associated with a $0. buying a car or furniture or repairing the house. As people understand and have more information on process and rewards of’ whereas investment was ‘to make more money’.16 higher savings than participants with no accounts. that may influence savings motive. IDA participant is also required to attend free financial education and asset specific classes as well as peer group meetings as part of the program. Weiss. this is particularly true for low-income households. targeted financial education. They later identify these 4 institutional variables as 5. Al (2006). Account holders receive matching funds as they save for assets that promote long-term well-being and financial self-sufficiency such as homeownership. IDAs are matched savings accounts. prices. postsecondary education and microenterprise. It is also interesting to note that participants who have either a checking or savings account (other than their IDA accounts) in other institutions are associated with a $3. previous studies on this issue provide rather mixed results (e. Kim. individuals may choose to save more because the price of 7 . Schreiner and Beverly. Saving acted as a reserve of excess funds for future use and for emergency purpose like traveling.

8 . Studies in Malaysia and Singapore find both religion and profit as the reason for relationship with Islamic banks (Haron et al. 1994. The findings indicate that the conventional TDRs Granger cause Islamic TDRs. The outcomes of interest rate effect on savings are not conclusive as most empirical studies found generally small and often insignificant positive coefficient of interest rate. individuals may choose to save less and still enjoy the same amount of future consumption (the income effect). They further argued that interest rate changes may not change the level of savings but simply result in reshuffling of assets. 1997). Using the Pearson Correlation and First Order Autoregressive model. which may be due to the uncertainty of substitution effect and the income effect (Kim. Haron & Shanmugam (1995) try to link the rates of profit to total Islamic bank’s deposits. which is more likely to happen in high income households. Second. They applied unit-root test and Granger causality test. Gerrad and Cunningham. 2001). with no net savings. they found a strong negative relationship between interest rates and the total Islamic deposits. Kaleem & Isa (2003) studied the relationship between Islamic and conventional term deposit returns from January 1994 to December 2002 on a monthly basis. 1989).current consumption increases relative to the price of future consumption (the substitution effect). They concluded that Islamic banking considers interest rate before adjusting its deposits returns.. Studies have shown that religion is not the only factor that influences customers to choose Islamic banks (Erol & El-Bdour.

However some open-ended questions were still included to solicit reasons for a particular decision or behavior. email and snowballing technique through workplace contacts to obtain the following final usable sample: 9 . We obtained responses for 161 questionnaires (80%).5%) were usable.0 Methodology This study used data obtained from a survey distributed to about 200 respondents in November – December 2006 around Klang Valley area. Part B was structured to help examine (qualitatively) the relationship between the decision to transfer fund and religion. Yes or No questions and Likert Scale questions. A quota sampling method was used in this study to ensure we had data representing each sector and age group we chose to analyze. The 6 pages questionnaire consists of multiple-choice questions. A total of 135 questionnaires (67. It had an introduction page (explaining the definition of savings under study and the objective of the study) followed by 3 pre-arranged sections: ƒ Part A – Savings Behavior ƒ Part B – Returns on Deposits ƒ Part C – Respondent’s Background Questions in part A were structured with the objective to identify factors that motivate people to save and also their savings motives. We distributed the survey using various methods including personal interview. Below is the sampling distribution that we utilized in the study: Sampling distribution Government Private companies Self Employed Student Retiree Total Student Early working Retirement Retiree 18 – 24 25 – 40 41-55 >55 10 10 20 10 10 20 10 10 20 20 20 30 20 20 30 20 100 20 We then administered the survey using a convenience sampling technique to achieve the quota. The questionnaire was typically structured to ease the data collection process.3. Part C collected all the demographic variables of the respondents. as respondents are usually unwilling to spend long time to answer survey questions.

10 . We also had some difficulties initially to obtain responses especially form those in the age of 41-55. We obtained 14% sample from both the government sector and those who were self employed although the distribution of the age seem to differ slightly from our planned distribution.4%). however certain quota seem to have a surplus with some other showing deficits.000. the response seems to improve. We initially had one respondent that earned more than RM 10.Table 1: Final Valid Sample (n=135) Sector Age group 18-24 25-40 41-55 > 55 Total Government 0 11 9 0 20 Private 4 36 11 0 51 Self Employed 1 12 7 0 20 Student 33 0 0 0 33 Retiree 0 0 0 11 11 Total 38 59 27 11 135 We were able to obtain more samples than planned.000 – RM 6. Christianity (9.000. 19% Chinese respondents. there are 65.1% Bumiputra. The majority (75%) of our respondent had a high level of education (degree – Phd).000 and 11% earned RM 6. We only manage to obtain 8% of those in the retiree age group. 40% earned RM 2. Buddhism (19. About 49% of the respondent earned less than RM 2. Muslims (60.000 in our sample.000-RM10.7% Indian. Those working in the private sector dominated the sample (38%) followed by students (24%). 20% with middle level of education (STPM – Diploma) and the balance 6% with a low level of education (PMR and lower). According to ethnic composition in the 2000 census. however we excluded the response to avoid any outlier problem. However after the utilization of snowball technique. 53% of our sample was female.3%). 2 We had all races in our sample because we wanted to explore whether there was any significance difference between Muslims and non-Muslims when evaluating the relationship between the decision to transfer fund and race. 10% Indian respondents and 4% from other races. With regards to monthly income. 26% Chinese and 7. 2 The proportion of the difference races seems to conform to the distribution of Malaysian population. In general.1%) and Hinduism (6. 10 respondents did not disclose their income.2%). We had 68% Malay respondents. 50% of the respondents were married with 35% (from total respondent) having children below the age of 18 (dependent child). Religion distribution of Malaysian population is highly related with ethnicity.

Asset purchase 42. Increase wealth 36. Emergency 90. b. To examine the relationship between the decision to transfer fund and religion.0 Valid Conventional Islamic Both Total Frequency 74 26 35 135 Percent 54.0 About 55% from our sample had only the conventional savings account. The summary of our findings is presented in Table 3: Table 3: Saving Motives Saving motives % Yes 1. To identify factors that motivates people to save.0 Valid Percent 54.5 5. Table 2 presents the type of savings account held by the respondents.e Why do you save?) and they were given the option of choosing more than one answer.0 Findings and Discussions Descriptive Statistics This study was carried out to achieve two main objectives: a. Retirement 38.e if conventional interest rate increases the amount deposited in the Islamic facilities would decrease (customer would transfer their fund from Islamic facilities to conventional facilities).4 2.7 3. Inheritance 11.7 7. Return on savings 26.8 19.4.1 11 . Savings motives We asked the respondent the purpose of their saving (i.8 74. Table 2: Account Type Cumulative Percent 54. We only focus on bank savings in this study because we were particularly interested to obtain a qualitative insight into the findings by Haron and Ahmad (2000) where they found a negative relationship between interest rate of conventional banks and the amount deposited in Islamic deposit facilities i. While 19% had only Al-Wadiah savings account and the remaining 26% had both conventional and Islamic savings account.8 19.1 100.9 100.3 6.3 25.3 25.9 100.2 4. Children's education 43. To achieve the first objective we conducted the following descriptive analyses: i.

Horioka & Watanabe (1997) found that Japanese families mainly put away savings for retirement and precautionary reasons.41 10.70 99.44 7.52 1.74 100. They ran a tobit analysis and found that checking account and savings account follow the pattern of survival need asset i. Bequest motive (inheritance) seems to be the least contributing purpose for saving.96 1.26 0. In order to access the priority of the savings motives.48 100.15 6. we asked the respondents to only choose the most important and the least important purpose of their savings.48 98.74 28. The least important reason for saving is for the return on savings account (28%) and for inheritance purpose (23%). Johnson 1999).67 7.96 8. al 1997.96 0. Thus the return (interest.e the most basic financial need. Our findings are thus consistent with the Katona’s (1975) findings where people save for emergency and retirement purpose and few claimed to save for future income (interest or dividend) and bequest (inheritance) motive. Alessie et.Precautionary motive seems to be the primary reason for saving.15 22.74 3.37 7. The results are presented in Table 4: Table 4: Priority of Saving Motives Most Important Purpose Least Important Purpose Frequency Emergency Asset purchase Children education Retirement Wealth Return Inheritance Others Total NR Grand Total 84 6 10 14 10 4 1 5 134 1 135 Percent 62. 90% of our respondent agreed that they save for emergency purpose. Harris et. Checking and savings account (especially those savings accounts that are not of substantial amount) are meant for regular income deposit and daily expenses payment purposes and not for investment purposes.41 2.00 The two most important purpose of saving is for emergency purpose (62%) and to save for retirement (10%). The hierarchical financial needs categorization by Xiao and Anderson (1997) may help explain why return on savings account is the least important reason.00 Frequency 4 11 9 10 28 38 31 2 133 2 135 Percent 2. dividend) on savings serves as the least important purpose that people save for. Other studies have also found that precautionary motive is one of the most important reasons for saving (Kotlikoff 1989.22 4.41 20. Further insights that supports our findings were provided by a few respondents (during the interview) when they explained that they would provide well education for their children to ensure the survival of the child rather than providing them 12 . al (2002) reported that bequest motive is a relatively less important motive in Australian families.

having a savings target either formally (written down budget) or informally (mere planning in mind) help discipline them to make a committed savings each month.90 2.81 2.45 2.84) and incentive mechanism (2. Factors that motivates saving In addition to savings motive we also tested how the 4 institutional mechanisms (facilitation.62 2. We also calculated the overall mean for each mechanism using the compute function in SPSS.Most motivating The mean of each factors were calculated. A simple descriptive analysis was carried out to analyze which mechanism gives the highest motivation for regular saving.84 2. information.67 2.59 2. incentive.70 2.84 2.” ii. 13 .82).77 The top two mechanisms that motivate the respondents to save regularly are the expectation mechanism (2. al (2003) would motivate our respondents to save more often. The respondents were given a list of the mechanisms and they were asked to rank how these factors would motivate them to save more often according to the following ratio: 1 – Not motivating 2.69 2.74 2. Results are presented in Table 5: Table 5: Institutional Mechanisms Descriptive Statistics N Sum Mean Facilitation 125 327 Deposit machine 132 323 Direct debit 127 357 Incentive 129 364 High return 134 388 Tax exempt 129 354 Information 130 349 Save wisely 132 352 Create budget 133 359 Manage money 134 380 Buy asset 133 344 Expectation 129 367 Savings target 133 391 Buy asset goal 130 360 2. Having a monthly savings target seems to be the most motivating factor that helps respondents save more often (highest mean = 2. expectation) identified by Sherraden et.Somewhat motivates 3-Motivates 4. According to a few respondent that were interviewed.94 2.94).with a bulk of money as this proverb goes “Teach the person to catch a fish (rather than just giving him a fish everyday) so the person can catch his own fish in future.82 2.

This measurement may have limitations because it does not give the respondent the opportunity to take a neutral position. Therefore. In addition.84). The bank’s are far and I do not have time to go”. We then further asked if they would participate if the banks were to do a mobile financial education class around their housing area or shopping complexes. Since our dependent variable (transfer fund) is a nominal data. We included a question asking if the respondents would transfer their fund from Islamic account into conventional account if the conventional account pays a higher interest. Part B of our questionnaire was specifically designed to obtain further insights into findings by Haron and Ahmad (2000). We used a 4-point Likert scale to measure the level of motivation.The next motivating factor is high return on savings (mean=2. Just out of curiosity we included additional question to a few respondents that seems to be highly motivated (response of 3-4) by the financial education/information factor.90). Future studies may use a 5-point. we chose to run a chisquare test to the following hypothesis: Ho: The decision to transfer fund is independent of religion Ha: The decision to transfer fund is dependent on religion 14 . We asked whether they would attend these classes if banks were to have it over the weekend or any other specific time.81) because committed savings is prearranged before salary could be spent. The result however has to be observed with prudence because the term “high” is relative and different respondent may have different interpretation of it. This would be a rational outcome to be expected since people would be more motivated to save if they earn a higher return from their saving. financial education or information on money management seems to motivate the respondents to save more often (mean = 2. One point has to be taken into account when interpreting these results. Finally. the direct debit facility or automatic deduction from salary also seems to motivate people to save more often (mean = 2. 7point or even a 9-point Likert scale to have better measurement of the motivation level. This is one area where consumer education could play its role. the best medium of information transfer would have to be explored because it would be costly for banks to handle financial education classes with low attendance rate. even though the information factor seems to motivate respondents. Hypothesis Testing The relationship between the decision to transfer fund and religion In order to achieve the second objective. They were given a simple “Yes” and “No” answer option with a follow up question asking reasons for their responses. The common answer among few elderly was “No. The response seems to be more positive and encouraging.

The pearson chi-square statistic is highly significant (.0% Total 58 43.146 135 df 3 3 1 a.000 Pearson Chi-Square Likelihood Ratio Linear-by-Linear Association N of Valid Cases Value 59. Thus we reduced the number of categories in religion to have a more valid test result.0%) have expected count less than 5.0% 77 57.102 42. re-ran the chi-square test and obtained the following results: Transfer * RR_Muslim Crosstabulation RR_Muslim 0 Transfer Yes No Total Count % within RR_Muslim Count % within RR_Muslim Count % within RR_Muslim 39 90. 2 cells (25.000) however there are 25% of the cells that have an expected count less than 5. (2-sided) .7% 73 79. We therefore created a dummy variable for religion (1= Muslim. 0 = otherwise).7% 4 9.72.0% 1 19 20.0% 15 . We then. This violates one of the assumptions of chisquare test (minimum expected count must be 5).116(a) 65.3% 92 100. Sig.000 . The minimum expected count is 1.3% 43 100.Initially we cross-tabbed transfer fund with religion (measured in 4 categories) and the results are as following: Transfer * Religion Crosstabulation Count Religion Islam Transfer Total Yes No 19 73 92 Buddhism 24 2 26 Hinduism 12 1 13 Others 3 1 4 Total 58 77 135 Chi-Square Tests Asymp.0% 135 100.000 .

We grouped their answer into 6 categories.47. it’s my duty as a muslim. The main reason for non-transfer is prohibition in Islamic law (37%).Chi-Square Tests Asymp.000 Exact Sig. We included a respondent under this category if they provided answers like. The observed cell frequencies show that about 80% of the Muslims would not transfer their fund to the conventional account even when it pays higher interest. Sig.672(b) 55. 0 cells (.0%) have expected count less than 5.000 . return is not main purpose of savings (15%). (2-sided) Exact Sig. it is a hassle to switch between accounts (8%) and there is no significant difference in the amount (6%). to provide support for Islamic banking industry (23%). there is a prohibition in my religion. Computed only for a 2x2 table b. The minimum expected count is 18. dif Total Frequency 24 15 10 7 5 4 65 Percent (%) 37 23 15 11 8 6 100 65 respondents (out of 77 that indicated “No” as their answer) provided their reasons for not transferring their fund.238 1 . halal return.138 df 1 1 1 135 a.000 .000 . (2-sided) .000 . return in this world and hereafter and for zakat purposes. We therefore could reject the null hypothesis and conclude that there is a significant relationship between the decision to transfer fund and religion of the account holder. (1-sided) Pearson Chi-Square Continuity Correction(a) Likelihood Ratio Fisher's Exact Test Linear-by-Linear Association N of Valid Cases Value 58. 16 . riba is prohibited. The reasons indicated by the respondents are summarized below: Reason for non-transfer Islamic Law Support IB Not for return Hassle Other No sig. Other reasons include.000) with no cells violating the chi-square assumption.000 58. The Pearson Chi-Square statistic is highly significant (.849 64.

The Phi and Cramer’s V statistic is 0.029-0.50 High correlation 17 . S. the findings may not reflect the behavior of respondents that have a substantial amount of savings. We therefore ran another chi-square test to test the following hypothesis: Ho: The decision to transfer fund is independent of savings amount Ha: The decision to transfer fund is dependent on savings amount We have collected the information on total savings (in their savings account) for each respondent.659 135 Approx. Salkind. will you transfer your money from the Islamic account to conventional savings account?” The question did not provide any magnitude of savings nor differences in the return rate.000 .50) and significant. Using SPSS for Windows: Analyzing and Understanding Data: Prentice Hall. 3 We can therefore conclude that there is a significant relationship between the decision to transfer fund and religion. The answer for this question initially had 8 categories. N.. Since savings account pay a relatively low return for small amount of savings.659 .000 2 = Medium savings = RM 2. . Using the asymptotic standard error assuming the null hypothesis. This shows that there is a high correlation between the two variables.000 3 = High Savings = RM 8.01 No correlation ƒ Phi and Cramer’s V = .001 – RM 8. New Jersey. Sig. To avoid the violation of chi-square assumption (minimum expected count must be 5) we recoded the total savings variable into three new categories: ƒ ƒ ƒ 3 1 = Low savings = below than RM 2.50 Moderate correlation ƒ Phi and Cramer’s V > 0. T.29 Small correlation ƒ Phi and Cramer’s V = .B. b. p.659 (more than 0. This finding is also consistent with the findings in the first part where our results show that return on savings is the least important savings motives. 406. We also calculated the Phi and Cramer’s V statistic to capture the strength of the correlation between transfer fund decision and religion.01 – 0.M.000 a.Symmetric Measures Nominal by Nominal N of Valid Cases Phi Cramer's V Value . and Akey. The question to examine this issue was however worded generally: “Assume you have both conventional and Islamic savings accounts. (1997).J.001 and above This rule of thumb is based on Green. His rule of thumb indicates that: ƒ Phi and Cramer’s V < . Not assuming the null hypothesis. If the conventional savings account pays higher interest.

0% 2 7 38.362 > 0. Muslims are guided not only by profit motive but also religious factor. Sig. 0 cells (.1% 19 100. One possible explanation for the contradicting result is the context of study.397 135 df 2 2 1 a. Investment account holder may have a different savings motive and may therefore have a different decision. Thus we could not reject the null hypothesis. Our study is only focusing on savings account where return on savings may not be a significant factor to the respondent’s transfer decision.The result of the chi-square test is as follows: Transfer * Savings_new Crosstabulation Savings_new 1 Transfer Yes No Total Count % within Savings_new Count % within Savings_new Count % within Savings_new 40 40. (2-sided) .237 Pearson Chi-Square Likelihood Ratio Linear-by-Linear Association N of Valid Cases Value 2.0% 3 11 57. We can therefore conclude that the decision to transfer fund is significantly different between Muslims and non-Muslims regardless of their savings amount.365 .1% 18 100.0% Chi-Square Tests Asymp. Future research in the area is needed to provide empirical evidence on behavior of investment account holders.9% 8 42.2% 98 100.05).362 . This finding is therefore not consistent with findings by Haron and Ahmad (2000). The minimum expected count is 7.8% 58 59.0% 135 100.0% Total 58 43.73. Therefore the decision to transfer fund is independent of the amount of savings the respondents hold. However Haron and Ahmad included all deposits (including Mudharabah investment account) in their study. The significance level of the Pearson Chi Square statistic is more than the alpha level (0.014 1. 18 .035(a) 2.0%) have expected count less than 5. Generally.0% 77 57.9% 11 61.

Weiss et. gender (1 dummy) and attitude (1 dummy). education. We were also interested to examine whether this variable would play a significant role in predicting savings. Model 1 had saving time as an additional variable because we asked the respondent the length of time they have kept their total savings. we also asked the respondents their saving attitude (1 = save then consume. of children.Exploratory Predictive Model In Part A of our questionnaire we collected information on total savings (TS) and monthly savings (MS). type of employment and asset ownership (Lunt & Livingstone 1991. With this limitation in mind. We have collected these variables (except asset ownership) in our survey and thus it could be incorporated in a regression model to predict TS and MS. 2= consume then save balance). We had 10 independent variables in Model 1 and 9 independent variables in Model 2. Since the model includes a few demographic factors we had to create dummy variables to represent race (3 dummies). age. Al 2006). The results of the linear regression for Model 1 are presented below: 19 . 0 otherwise) = Dummy for gender (1 = Male. 0 otherwise) = Dummy for Indian (1= Indian. 2= middle.(1) = a + b1Y + b2Age + b3Child + b4Educ + b5R1 + b6R2 + b7R3 + b8G + b9Att + e …………(2) TS MS Age Child Savtime Educ R1 R2 R3 G Att e = Total savings = Monthly savings = Age of respondents = Number of children below 18 years old (dependent child) = Saving time (how long have accumulated total saving) = Education level (1= Low. gender. we explored whether we could predict the two dependent variables using a multiple regression model. 0 otherwise) = Dummy for Chinese (1= Chinese. no. the following variables (economic and demographic) have been used to predict savings. 0 otherwise) = disturbance term to capture the unobservable effect MS Where. We specify our models as follows: TS = a + b1Y + b2Age + b3Child + b4Educ + b5Savtime + b6R1 + b7R2 + b8R3 + b9G + b10Att + e …………. 0 otherwise) = Dummy for saving attitude (1 = save first. To obtain maximum response we had to measure these variables within 8 categories of ranges. income. From the review of past studies. race. 3= high) = Dummy for Malay (1= Malay. Besides these variables.

293 . of child.386 Std.259 1 (Constant) saving time Age group No.917 2.Model Summary(b) Model R R Square Change Statistics Durbin-Watson R Square Change F Change df1 df2 Sig.259 271.111 1.122 ANOVA(b) Sum of Squares 76. Error 2. Save first.583 .193 > 0. F Change 1 .488 61 a. Predictors: (Constant).244 . Educ.666 .537 .434 10 51 .219 1. RR_Chinese.812 .375 . Dependent Variable: saving Coefficients(a) Unstandardized Coefficients B 1. The examination of the co-efficient also shows that none of the variables included has a significant co-efficient.289 . saving time.408 -.331 -1.105 1.553 1.900 . No. RR_malay b.388 1.229 Model 1 df 10 51 Regression Residual Total Mean Square 7.549 . Save first.685 Model t Sig.794 a. RR_Chinese.183 .373 . child.214 .794 . Gender_Male.685 .193 a.711 .174 -.120 .553 so we can say there was no serious collinearity 20 . Income. Age group.114 .365 6.525 .576 .576 . Educ. Income and no. income and education) did not exceed 2.622 .563 . Gender_Male. RR_Indian.318 F 1. Predictors: (Constant). RR_malay b.193(a) 347.021 .619 .608 .626 5.227 1. .742 .555 .435 .677 . Age group.05). of child seems to have the lowest significance however it still exceeded the 10% cut off point. RR_Indian.434 Sig.795 .258 2.468(a) .825 -.780 . Collinearity Statistics Tolerance VIF 1.364 . of child Income RR_malay RR_Chinese RR_Indian Educ Gender_Male Save first .151 .553 . Income. of child.896 . The Variance Inflation Factor (VIF) for the quantitative variables (saving time.237 . saving time.720 .421 . Dependent Variable: saving The findings indicate that Model 1 is not significant (p-value of the F statistic = 0.605 4.476 1. No.358 .826 1.820 8.350 1.715 . age group. Dependent Variable: saving 2.219 .567 .392 .

RR_Indian. Gender_Male. Age group. RR_Chinese. For some of the respondents where an interview method was utilized. The result of the linear regression of Model 2 is presented below: Model Summary(b) Model R R Square Change Statistics Durbin-Watson R Square Change F Change df1 df2 Sig. there was room for misunderstanding of this question. Kurtosis less than 3 21 . Educ. RR_Chinese. Dependent Variable: monthly saving 1. RR_Indian.750 6. RR_malay b. No. 5 The descriptive analysis of residual is shown in Appendix 1. the confusion could have been clarified but if it was only distributed and re-collected later. however some respondents may have understood it as savings in one month.560 . Predictors: (Constant). The question was worded as following: “How much is your TOTAL savings (in your savings account) not intended for current consumption (within 1 month)?” The objective of the question was to measure total savings.893 ANOVA(b) Sum of Squares 14. Educ.000(a) 18. Dependent Variable: monthly saving 4 5 The VIF indicates a problem if the factor exceeds 10 (Neter et.991 9 21 . of child.000 a.036 4.. Income. Thus total savings may face some measurement problem. Save first. .991 Sig. Further refinement of the questionnaire is vital for improvement of the measurement of total savings. Income.866(a) .problem. Predictors: (Constant). One factor that may contribute to this insignificance is the different interpretation that the respondents may have made in understanding the question. Save first. 1983).721 30 a. F Change 1 .750 . RR_malay b. Gender_Male. of child. Age group. 4 The descriptive analysis of the residuals shows that the skewness and kurtosis conform to normality.685 Model 1 df 9 21 Regression Residual Total Mean Square 1. No.223 F 6. al.

767 . The attitude (save first then consume) may be significant at 10% level.000). Child has a negative coefficient indicating that the more dependent child an individual has.345 a.156 9.195 Model t Sig.750 . A negative co-efficient would mean that those who save first would have a lower monthly saving. The R2 = 0.071 .151 -.75. income and no.194 . Income has a positive correlation indicating that the higher the income then the higher will be the monthly saving.092 .844 .358 . The examination of the co-efficient indicate that 2 variables are highly significant. Race.202 1 (Constant) Age group No. education level and age were not significant.295 1. the higher educated individuals may be investing elsewhere where they may be earning a higher return than return on savings account.732 . Looking at the positive sign of the gender co-efficient.832 -.998 8. 22 .201 -.717 -.100 . Error .487 . Race does not seem to have any effect on monthly savings. the lower will be the monthly saving because they have more expenses to incur. The older the respondent is.994 5. The findings indicate that Model 2 is a significant exploratory predictor (p-value of the F statistic = . of child Income RR_malay RR_Chinese RR_Indian Educ Gender_Male Save first 2.902 . One possible explanation would be. Other variables are not significant.609 .Coefficients(a) Unstandardized Coefficients B 2.124 -.065 . This shows that the model may be able to explain 75% of the variance in monthly savings.675 .121 .622 .989 . Collinearity Statistics Tolerance VIF 1.500 -. We expected a positive sign. The signs of the co-efficient for age and education does provide a reasonable explanation. Attitude has a negative co-efficient.232 -.592 . the lower will be the monthly saving because they will have a larger family and higher household expenses. those who save first may provide a smaller amount of saving compared to those who consume first and save the balance.314 Std. (The dummy used was 1= save first).843 . As for the negative co-efficient of education. of child.115 .771 .779 .707 -4.012 .764 .091 -.690 1.369 -.066 . Gender slightly exceeded the 10% cut off point.185 1.617 -1.221 . Dependent Variable: monthly saving Only 65 respondents in our sample had a monthly saving allocation thus we only used 65 observations to fit this model.643 15.284 1.072 .000 . males may be saving more compared to the female respondents.383 -.481 1.748 -. Thus no one race had a significantly higher monthly saving compared to the other races. this indicates that the higher the education then the lower will be the monthly savings.669 1.000 .142 . Since we are looking at bank savings account.101 -.

Johnson 1999 and Harris et. the R2 may be biased towards a particular group of respondents that produced similar responses.The Variance Inflation Factor (VIF) for the quantitative variables (age group. the findings are also limited in generalization as we adopted a convenience sampling method due to time constraint.0 Conclusion Savings behavior is usually examined using a time-series (longitudinal) data.717) with a significance level around 10%. Alessie et. This means that there maybe a lot of missing variables that is not included in the model. Future work in this area is needed with a larger sample size (maybe N>300) and more dispersed respondent to obtain a more conclusive and strong predictive model. to identify factors that motivate people to save and to examine the relationship between the decision to transfer fund and religion of account holders. The descriptive analysis of residual is shown in Appendix 1. having a monthly savings target) gives the highest motivation to help people save regularly. income and education) did not exceed 1. child. the above methodology has helped us identify problems that may occur in future studies and thus provided us with an opportunity to further refine the questionnaire and improve our sampling technique. since this is a preliminary study. Kotlikoff 1989. Nevertheless. 5. This is quite a small number of observations to obtain a reliable model. 23 . However the results have to be interpreted with prudence because only 65 respondents had a monthly saving. Our findings are consistent with previous studies (Katona 1975.690 so we can say there was no serious collinearity problem. This limitation should be first highlighted before the findings are summarized. This exploratory finding thus indicate that income and number of dependent children plays a significant role in predicting monthly savings while none of the variables were able to predict total saving. In addition.e. Our results indicate that the expectation mechanism (i. The least important reason to save was for return on savings account and bequest 2002) and provide some evidence that checking and savings account (especially those savings accounts that are not of substantial amount) serves as a cash management tool rather than an investment account. With only 2 significant variables. however the findings and discussions in this study are based on a cross-sectional survey of 135 respondents within Klang Valley area. Besides the savings motives. The descriptive analysis of the residuals shows that the skewness and kurtosis also conform to normality. The results suggest that savings account holders primarily save for precautionary motives and retirement purposes. Then we may be able to build a model with a much more reasonable R2 and more accurate coefficient signs. al 1997. Since the study only involves a small number of observations. The constant of the model is quite high (2. al 2003) motivates people to save more often. Horioka & Watanabe 1997. The study was carried out to achieve two main objectives. we also explored which institutional mechanism (identified by Sherraden et. 75% R2 is just too high.

2006). 24 . Future research in this area could include a survey of household financial need and whether the current financial instrument has met this need. The preliminary results suggest that income. The results from an improved behavioral finance study may give valuable insights on how people decide to save. we explored two models to predict the amount of total savings and monthly savings. invest and consume (Mitchell and Utkus. None of the variables included in the exploratory model (including age. Majority of Muslims would not transfer their fund due to religious restriction. These exploratory models were intended to identify possible variables for further investigation. Empirical studies of savings and investment behavior could also provide valuable information for financial advisors and educators. We only focused on savings account while Haron and Ahmad included savings and investment account in their study. It can help them understand why people save and what they invest in and thus provide valuable insights into the financial planning of personal finance. The highlighted limitation of this study should be taken as an opportunity to further improve the study rather than a stopping point because a study of behavioral finance is able to give new ideas about how “real” people make economic decisions.We ran a chi-square test to explore whether respondents would transfer their fund from Islamic savings account to a conventional savings account given that the conventional account pays a higher interest. number of dependent child and savings attitude may possess significant effect in determining monthly saving. Future studies may need to include the behavior of investment account holder to improve the comparability of the results. This information could then serve as empirical evidence that financial institutions may use to design new or improved financial instruments. race and education) were able to predict total savings. Thus the results do not provide conclusive evidence of prediction. These results however need to be taken in view of the limitation we have highlighted above. Our results suggest that the decision to transfer is related to religion of the account holders and not related to the amount of savings. This finding is inconsistent with the finding of Haron and Ahmad (2000) maybe due to differences in the context of study. On top of the two main objectives.

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09087101 1.79952255 1.427 .14509029 1.613 Std.306 .0937475 .588 -.604 .306 . Deviation Statistic 2.54785473 .835 .444 .687 .2979411 .0225064 -.427 Kurtosis Statistic .272 -.604 .833 .708 Std.325 -.444 .Appendix 1: Table 1: Descriptive Statistics for Residual of Total Savings Std.604 Table 2: Descriptive Statistics for Residual of Monthly Savings Std. Error .656 Std.0154491 -.639 .1100038 Skewness Statistic .833 28 .766 -.0287336 Skewness Statistic -.39349468 N Unstandardized Residual Deleted Residual Standardized Residual Studentized Residual Valid N (listwise) Statistic 30 30 30 30 30 Mean Statistic -. Error .604 .427 .766 -.306 Kurtosis Statistic -.0072971 -.639 .15989701 1.427 .325 -. Error .2161935 . Deviation Statistic . Error .833 .318 Std.833 .51568533 3.306 .21656381 N Unstandardized Residual Deleted Residual Standardized Residual Studentized Residual Valid N (listwise) Statistic 61 61 61 61 61 Mean Statistic .