CHAPTER ONE

Introduction

1.1 Background of study

Savings, according to Keynesian economics, are what a person has left over when the cost
of his or her consumer expenditure is subtracted from the amount of disposable
income earned in a given period of time. Saving is among important variables for the
growth of an economy for any country. In addition, an income is doing not consumed by
immediately buying goods and services. It constitutes the bases for capital formation,
investment and growth of the society (Nwachukwu and Odigie, 2009). Even if household
saving has multiple uses, it has two primary functions. First, saving provide economic
security of safety in the future. By transferring resources from present to future through
savings, individuals are prepaid to face unexpected and irregular financial situations.
Second, saving leads to accumulation of wealth that enables individuals to improve their
living standards and to respond to new opportunities.

Even if the Ethiopian banking system has long-history phenomenon, most of Ethiopians
were not in a good habit of saving. They generate income and led themselves but they are
missing the way how to properly manage it. Some of the consumption habit of society
particularly are relates to cultural traits expected in extravagant expenditures during holly
days and occasion and ceremonies such as wedding, funeral etc. That has a negative
contribution on saving. The act of saving influenced by several variables like, perception
of saving of those who save their assessment of its cost and benefits or the return from
saving, their age, family size and structure, objectives and motivation of saving,
environment, etc.

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Furthermore, this paper would examined the factor that affect household saving in Dire
Dawa city.

1.2 Statement of the problem

Saving is a very important for meeting any emergency accrued by the individuals or the
households and it has also effect on future economic status of household. Saving is more
of meant for meeting contingencies but sometimes it also acts as a form of investment.
Accumulation of money through saving will bring economic benefit in the future that is
what we call investment in the future. However, sometimes peoples are not inclined
towards saving and the very delicate reason is lack of awareness. This study can be a
relevant one to know the reason of why not peoples save and if saving occurs then what
are the determinants, which are responsible for saving. There are demographic,
economic, seasonal and cultural factors makes peoples not to save, those are lack of
efficient and effective use of an income, culture, age, member of householde.

Even if, most of the individuals have an enough income, still they do not use their own
income in an appropriate and efficient way. In the study tried to identify the factors that
affect households saving in Dire Dawa city. Accordingly the study will try to answer the
following research questions:

1. what factors affect households saving behavior?

2. what are major source of income for households?

3. what are saving practice and habit of household looking like?

1.3. Objective of the study

1.3.1. General objective

The overall objective of the study is to assess the factor that affect household saving in
Dire Dawa.

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1.3.2. Specific objective
 To identify the major sources of income for the households.
 To evaluate the major factors that affect household saving.
 To assess of saving practice and saving habit of house hold in Dire Dawa city.

1.4 significance of the study

After this study will be finished it will bring the following significances

 The saver and financial institutions will be aware of the factors why peoples do
not save
 The finding may use for financial institutions to see their potential customers and
they may design attractive means of saving services for the society.
 It will show an empirical evidence for the savers in relation to their saving whether
they have high level of income or not.
 It will show that the way to save their scares / limited income in a proper manner.

1.5 Scope of the Study

Due to time, budget and other limitations the study will be conducted on selected kebele
of Dire Dawa city.

1.6 Organization of the study

The paper will be organized as follow. In the first chapter there will be an introduction,
statements of the problem , significance of the study ,scope of the study ,research
methodology and organization of the paper .In the second chapter , review of literature
will be presented .the third chapter contain data analysis and findings of the research, and
fourth chapter will contain conclusion drawn from findings and recommendation.

1.7 Research Methodology

1.7.1. research design

The research proposal designed in the way which is suitable to answer the research
question and to meet the objective of the study.

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1.7.2. source of data

In this study, both primary and secondary sources of data will be used. The primary data
will be collected through questioner from selected households. Secondary data will be
collected mainly from unpublished documents such as previous papers.

1.7.3 Data Collection Procedures

In order to make an efficient and effective research study, it is important collecting a
good and reliable data for the study. This study will used two types of data gathering
instruments. The primary data will be collected through close- ended and open- ended
questionnaires. From the secondary data also collected from unpublished datas.

1.7.4 Sample Method Used

In this study the purposive sampling techniques will be used to obtain samples from the
total population in the selected kebeles of Dire Dawa.

1.7.5 Population and sample

The population of the study is all kebeles in Dire Dawa city. However; it is difficult to
manage the whole size of the population with in short period. Taking this problem in to
account that selects one kebele will be selected from the whole population by using
purposive sampling techniques.

1.7.6 Data analysis and presentation

Finally, the researcher the data will be gathered and analyzed by using percentage and
presented by using tables with explanation and interpretation.

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