THE IMPACT OF RELIGION ON HOUSEHOLD SAVING BEHAVIOR:

A SURVEY OF RELIGIOUS PEOPLE IN WEST AMHARA NATIONAL REGIONAL

STATE

By

Fentahun Admassu Yayeh

Amhara National Regional State Cooperatives Promotion Agency

Mobil No: +251918803488

Email: devtecon04@yahoo.com

Ju l y 2014

Bahir Dar, Ethiopia

Electronic copy available at: http://ssrn.com/abstract=2518129

 DEDICATION

To my Mother Atalel Mengistu who passed away in September 11, 2009;

May her soul rest in peace

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Electronic copy available at: http://ssrn.com/abstract=2518129

Raiffeisen on Savings:
“Many drops form first a Creek...
Then a Stream....
And finally, a River”

ABSTRACT

Although the relationship between religion and economic development on the macro-level
has been explored, it is less clear how background of religiosity influences economic
attitudes and financial decision-making on the level of the individual or household in the
micro-level. Savings can affect national development; widen the gap between rich and poor
nations. Like other saving determinant factors, religion in west Amhara National regional
state has had its share towards the impact of saving on households, and yet relatively few
research has been carry out to establish the extent to which religion has contributed to the
financial decision on households. This study was cross-sectional, that used both the
quantitative and qualitative data. It applied a multi-stage cluster sampling of administrative
units that were randomly selected. Data was collected using both open ended and closed
ended questionnaire, focus group discussions and probit as well as ordinary least square
(OLS) models were used for analysis. Using survey data generated from 384 religious sample
households, the results of this study shows that 240 (62.5%) of the entire sample of which
162 (67.5%) Orthodox Christian, 74 (30.8%) Muslim and 4 (1.7%) Protestant households
had saved during the survey time religious affiliation effects on saving behavior regarding the
decision to save money or not, comparing religiosity in the form of Christian to non-
Christian believers the results show that Christians are more probable to and save more
than non-Christian believers. In addition, Orthodox Christians save more than Muslims.
Frequent religious church/Mosque attendance, however, negatively affects savings
decisions.

Key words – Religious Affiliation, Religious Attendance, Religious Identity, Saving behavior,
West Amhara National Regional State

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1. INTRODUCTION
National savings in any economy are comprised of public savings and private savings. Public
savings is the savings done by the public sector i.e. by the government of the country, thus it is the
amount deducted from the government’s revenue after incorporating government’s consumption
(current expenditure). Private savings can be divided into savings done by households and savings
done by company business. Corporate savings are business savings and are the net income retained
after paying off all the expenses incurred by the business. Household saving therefore is savings
done by the household of the economy. If so, where is the origin of household savings begin? In
particular, are we born with a particular savings propensity? Or is it the result of individual-specific
life experiences?

In standard life-cycle or precautionary saving models, heterogeneity in time and risk preferences is
source of variation in savings behavior across individuals. On the empirical side, there is recently
emerging evidence that preferences are partly genetic (Kuhnen and Chiao (2009), Barnea, Cronqvist,
and Siegel, (2010), and Cesarini, Johannesson, Lichtenstein, Sandewall, and Wallace (2010) for risk
preferences, and Eisenberg et al. (2007) and Carpenter et al. (2009) for time preferences), Cited in
(Cronqvist, and Siegel, 2011).

Others have emphasized parents’ instilling behaviors in their children Bisin and Verdier, (2008).
There is indeed unreliable evidence suggesting that at least some parents exert costly effort to teach
their children particular savings behavior, by providing a piggy bank (a coin accumulation and
storage receptacle), opening a savings account, and otherwise emphasizing the benefits of a frugal
way of life. Parent-child socialization has been found to be empirically relevant for behaviors other
than savings, such as religion.

Both these studies are important in that they suggest that parents pass on their savings propensities to
their children, but they do not inspect the level to which this similarity is genetic versus the result of
social transmission of behavior from parents to their children. However many economists have
reached at a consensus that institutions1 matter for economic performance.

Douglass C. North defined institutions as: “the humanly devised constraints that structure economic,
political and social relations” and that institutions provide the incentive structure of an economy; as that
structure develops, it shapes the course of economic change in the direction of growth, stagnation, or decline.
(North, 1991 p. 97)

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The behavior of household in the allocation of economic resources is a decisive factor that exerts
influence on the growth corridor of a nation. The performance and determinants of such allocation
decision are important to understand the mechanisms and relations across consumption, saving,
capital accumulation and growth processes.

In Ethiopia, during the liberalized regime (1992 - 2009) presented a remarkable recovery of the rate
of capital formation which increased from 10.7% to 24.5% during 1992 and 2004 respectively. The
average capital formation rate for this sub period was 20.4%. The share of capital formation in the
GDP has reached more than 20% after 1997. The average domestic saving rate for 2005/06 –2009/10
in the economy was about 7%, for most the period savings were below 10%. The average capital
formation rate for 2005/06 –2009/10 has been 23%, leading to a resource gap of 16%. The capital
formation rate of Ethiopia was nearly the average as compare with the Sub Saharan Africa. During
1981 – 2009 the average capital formation for Sub-Sahara Africa (SSA) has been 18.9%, slightly
higher than that of Ethiopia. However, the saving rate was smaller than that of SSA average. The
low saving rate in the economy shows much of the domestic investment was financed through the
flow external resources such as foreign direct investment (FDI), external debt stocks and official
development assistance (ODA) (Rao, 2012).

On the other hand due to inaccessibility of commercial bank branches, microfinance institutions and
lack of strong saving and credit cooperatives, and some socio-cultural problems, deposit services to
the poor has been largely dominated by widely accepted and practiced semi-formal and informal
mechanisms such as Iqub2, Iddir3, buying livestock and jewelry and hiding cash at home.

Hence, Ethiopia is lagging behind in its saving rate; it is facing a serious situation of dis-saving from
public sector and from low levels of private savings. Hence, tackling low levels of household
savings is one of the most effective ways to improve the domestic saving rates. The life-cycle
hypothesis; proposed by Modigliani (1986), provides a theoretical framework of most determinants
of saving behavior used in modern empirical studies., these are those related to income, demographic
structures, macroeconomic stability, the interest rate, the level of financial sector development, and

2 Iqub is a local terminology, which is an association of people having the common objectives of mobilizing
resources, especially finance, and distributing it to members on rotating basis.
3 Iddir is a local terminology, which is an association for provision of social and economic insurance for the members
in the events of death, accident, damages to property, among others.

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external variables. The researcher focused on the demographic factor i.e. the effect of religion4, and
sees an economic analysis of religion at the household level as a research gap that needs to be filled.
Because in some religion, a number of religious ceremonies or fiestas taken place, money donation
for construction of church or mosque as well as annual contributions also has taken place, even if in
some religions unable to save money in financial institutions due to money saving interest payment
prohibition and some other religious practices are observed. However, studies that seriously assess
the impact of religion on household saving behavior are so far limited in the country as well as in the
Amhara national regional state. This is perhaps due to some undefined reasons.

Therefore, this research was explored the impact of religion on household saving behavior and
answer the research question: Does religion membership significantly affect household saving
behavior? And is there a significant difference in household saving behavior between the
dominant religion Orthodox Christian and Muslim?, based on a case-study of the population of
west Amhara national regional state for improving the welfare situation of an individual in particular
and increasing domestic saving of the Amhara national regional state as well as the country at large
to enrich the accumulation of existing but limited knowledge about the subject matter and can serve
as a reference material for policy makers, academicians and researchers.

2. REVIEW OF RELATED LITERATURE

There has clearly been an increase in concentration regarding the relationship between religion and
economics, and the extension of formal economic models to new areas outside conventional
economics, this expansion of economic approaches is not new, even if it remains challenging
(Anderson, 1988). In the late eighteenth century, Adam Smith, in his Wealth of Nations, broadened
economic reasoning to a variety of non-market exchange problems, including religious behavior.
Smith clarified the behavior of clergy and religious participants as an extension of human capital,
bringing them into the sphere of formal economic analysis (Iannaccone, 1998).

An illustration of rational choice as viewing religious behavior, rather than exclusion of it, the work
of several current thinkers in the field parallels other challenges to expand the domain of economics

4 Religion is a system of faith and worship usually involving belief in a supreme being and usually containing a moral
or ethical code; especially, such a system recognized and practiced by a particular church, sect, or denomination. In
construing the protections under the establishment clause and the free exercise clause, courts have interpreted the
term religion quite broadly to include a wide variety of theistic and nontheistic beliefs. Bryan A. Garner (1999).

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(Brennan and Waterman, 1994). The research is rather unlike ‘Islamic economics’, ‘Christian
economics’, or any other faith-based approach to economic theory and policy summarized below.
Barro and McCleary (2001) analysis further by looking at the display of statistics that have become
available with regard to church attendance in the US. Generally, their thesis states that economic and
political developments influence religiosity, and this religiosity influences economic and political
outcomes. They studied these two directions of cause and effect relationship using panel data
measuring church attendance over a number of different religious traditions over twenty years and
conclude that, whilst religiosity turns down over time as economic development improves, the
effects of religiosity differ. In particular and directly contradicting theories of religion being
‘unscientific’, church attendance is positively correlated with education but negatively with
urbanization. At the same time, religious beliefs rather than church attendance are linked with
economic development. Barro and McCleary, (2001) conclude that growth depends on believing
rather than belonging.

2.1 Religion and economic behavior

A constructive starting point about religion and economic behavior is Mangeloja’s, (2004) work that
looks at the secularization thesis, that is the importance of beliefs and religious activities should
deteriorate as education level, scientific understanding and economic welfare increases. While this
proposition has been challenged, it continues to pressure the ways in which many think about
religion in modern society. The Mangeloja’s study analyses the economic effects of religion, the
two-way interrelationship between religious and economic activities, and factors behind economic
behavior and growth. By including religious activity as an essential factor in economic development,
he explains that changes in belief systems can remarkably influence individual behavior in the same
way as conventional economic motivations, such as maximization of individual profit and utility.

2.2 Religion and Rational choice

This is an area that remains doubtful, largely because it tries to treat religious belief as a ‘rational
choice’ of individuals (Iannaccone, 1995a, 1995b; Iannaccone and Stark, 1998). Closely related to
the approaches summarized above is the application of rational choice theory to the study of the
correlation between religion and economics. The approach in itself is attractive, since the rational
choice theory has traditionally been quantitative, using statistical relationships rather than close
analysis of individual religious choices.

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Kwilecki and Wilson, (1998) in a particularly interesting paper that apply this rational choice
approach to Mother Theresa of Calcutta, trying to apply rational choice theory to a particular
individual religious benefit consumer. Their question is how rational choice theory explains the
religious career of a single person? They take Mother Theresa not only as a consumer of religious
commodities and as an investor in human capital, but also as an owner of a well doing religious firm.
Throughout the analysis she is presented as a rational utility maximizer and in the case of her
ownership of a firm as a profit maximizer. Conducting a cost-benefit analysis for each of her
choices, and conclude that rational choice theory provides a valuable insight into both Mother
Theresa’s personal saintliness and also her mission to the poor.

2.3 Economics of Religion

There is a distinct body of work that explores the connotations of religious values and beliefs of the
organization of economic activity arising from within the various faith traditions thinking in
Christianity and Islam religions explore briefly in this section. Economics and Christianity give an
emphasis on ‘altruism’, a quality that has a particular importance within the Christian tradition and
also there are many academic articles that deal with Christianity and economics directly. The
development of a Christian view of how people should behave and what the implications would be
for their economic behavior. There is a basic approach of trying to model an economic system given
a set of assumptions provided by the Bible. In academic language, much of the literature addresses
the question of whether the market promotes its own fundamental and selfish values are merely
reveals the values of society (Hay, 2001).

The writings of Roman Catholicism, for instance, that attempts to construct a model of a ‘Catholic
economy’, asserting that market solutions have a tendency to ignore the ethical implications of
economic decisions. This approach draws upon Orthodox Roman Catholic moral theology,
demonstrating how Catholicism has been broadly supportive of enterprise and markets, whilst
raising awareness of the ethical dimensions of market outcomes (Pryor, 1993). It is typically argued
that Catholic theology and practice facilitate personal transactions, while Protestantism supports
types and values of moral and legal enforcement better adapted for impersonal trade. Protestantism
may, thus, be more encouraging to economic growth through unspecified exchange, while
Catholicism may make available better support for personal contracting Beed and Beed, 1996). An

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investigation of evangelical Christianity is provided by Gay (1992), who argues that evangelical
Protestantism provides a specific and positive drive behind capitalist development.

Beed and Beed, (1996), who explore aspects of Christian philosophy and methodology from an
economic perspective and conclude that a Christian approach is not conformable with secular
thinking about the subject and forward three propositions to demonstrate this argument. First is the
inseparable interconnection in Christian thinking between the spiritual and material dimensions of
human life; second, the normative intention God has for human existence; and third is the tendency
of humankind to develop models of interpreting human behavior outside the bonds of a Christian
framework and conclude that the two approaches are incompatible.

Bible and saving Behavior

The bible is a book of scripture written by prophets to teach God's commandments and laws to all
people on earth, including the Old Testament and the New Testament. It includes prophesies, a
history of God's people and Jesus Christ birth, life, death, and teachings. Scriptural indications are
divided up into books, chapters and verses. In the Bible, there are passages that come into views to
refer to saving as negative and positive practice.

Saving as negative practice

Luke 12:24 says “Consider the ravens: They do not sow or reap, they have no storeroom or barn; yet
God feeds them. And how much more valuable you are than birds!” Jesus himself thought that man
does not live on bread alone (Mt. 4:4). In other words, man does live on bread, but not bread only.

Luke 12:16-21 also says “And he told them this parable: “The ground of a certain rich man produced
a good crop. He thought to himself, ‘What shall I do? I have no place to store my crops.” “Then he
said, ‘This is what I’ll do. I will tear down my barns and build bigger ones, and there I will store all
my grain and my goods. And I’ll say to myself, “You have plenty of good things laid up for many
years. Take life easy; eat, drink and be merry.” “But God said to him, ‘You fool! This very night
your life will be demanded from you. Then who will get what you have prepared for yourself?’
“This is how it will be with anyone who stores up things for himself but is not rich toward God.””

Matthew 6:19-21 says “Do not store up for yourselves treasures on earth, where moth and rust
destroy, and where thieves break in and steal. But store up for yourselves treasures in heaven, where

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moth and rust do not destroy, and where thieves do not break in and steal. For where your treasure is,
there your heart will be also.”

Saving as a positive practice

Take Proverbs 13:11 “Dishonest money dwindles away, but he who gathers money little by little
makes it grow.” Proverbs 6:6-8 “Go to the ant, you sluggard; consider its ways and be wise! It has
no commander, no overseer or ruler, yet it stores its provisions in summer and gathers its food at
harvest.” and Proverbs 21:20 “In the house of the wise are stores of choice food and oil, but a foolish
man devours all he has.”

Genesis 37-50 tells about the history of Joseph, one of Joseph’s marvelous qualities was his ability
to save in times of plenty for times of need: Genesis 41:47-49 says “During the seven years of
abundance the land produced plentifully. Joseph collected all the food produced in those seven years
of abundance in Egypt and stored it in the cities. In each city he put the food grown in the fields
surrounding it. Joseph stored up huge quantities of grain, like the sand of the sea; it was so much that
he stopped keeping records because it was beyond measure.”

Luke 16:10-12 says that “Whoever can be trusted with very little can also be trusted with much, and
whoever is dishonest with very little will also be dishonest with much. So if you have not been
trustworthy in handling worldly wealth, who will trust you with true riches? And if you have not
been trustworthy with someone else’s property, who will give you property of your own?”

On the other hand the Islamic economics idea was popularized by Maududi (1975), a Pakistani
ideologist who regarded his role partly as defending Islamic culture against the pressure of the West.
This set the tendency for later developments, as Islamic economics came to be considered as a
means of establishing Islamic authority in an area where western influences were dominant (Kuran,
1995).

According to Weiss, (2002), the rationale of Islamic economics is that individuals base their
economic decisions on the basis of the Islamic laws derived from the fundamental book and the
teachings of the religion. Islamic economics also incomparable with secular economics in three
things the first best-known difference is a complete ban on interest. Some argue, however, that this is
based on a very particular interpretation of the Quran that broadens out the banning of riba, the pre-
Islamic experience of doubling the debt of a borrower unable to repay on time (Kuran, 1995). The

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second major difference between Islamic and mainstream economics relates to redistribution,
specifically the thought of zakat. This system levies a tax on wealthy individuals to fund a set of
programs around poor relief, setting free of slaves and assistance to those undertaking religious
activities, amongst other activities. The third main area of difference is in the behavior of the ideal
Islamic behavior. The Quran commands good and forbid evil. It avoids waste and pretension,
promotes generosity, and discourages hurtful externalities, works hard and exchanges using fair
prices. Overall, the avaricious, self-centered behavior is transformed into a shining example of moral
behavior (Chapra, 1992). In addition, Quran is allowed to acquire property but is banned from
speculating, gambling, hoarding and harsh competition. Underlying all of Islamic economics is the
belief that an Islamic society can keep vested interests from blocking socially desirable changes
(Kuran, 1995).
But the history of interest rates tell us the prohibition was against usury in holy books, “where asked
is more than given.” The Latin noun usura means the ‘use’ of anything, in our case the use of
borrowed capital; hence, usury was the price of the use of once money. The Latin verb intereo
means “to be lost”; an essential form interisse developed into the modern term ‘interest.’ Interest
was not profit but loss. Compensation for loans was not lawful if it was a gain to the lender, but
became lawful if the compensation was not a net gain, but rather a compensation for loss or expense.
It was from exclusions to the canon law against usury that the medieval theory of interest slowly
developed. Interest from the start was allowed if it was not greater than the gain from investing the
money in the outright purchase of the property (Sylla, 2005).

Renneboog, L.D.R. and C. Spaenjers, (2012) analyzed the effect of religious affiliation on individual
economic attitudes, for example thrift and risk, and investment behavior in the Netherlands. Using
data from Dutch Household Survey for the years 1995 to 2008, they explained that religious
households report more frequently that they have saved in the previous year. They found a positive
relationship between individual religious affiliation and the individual propensity to save.

3. METHODOLOGY AND DATA ANALYSIS

3.1 Population, Sample and Sampling Procedure
The target population of the study was defined and restricted to include families in West Amhara
national regional state according to their religion and regardless of occupation, educational
attainment among other socioeconomic indicators. The total population of the entire region is about

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18.9 million people as of 2012 and the total population of the study area is about 11,455,997 people,
(CSA 2012). According to CSA 2007, the average family size of Amhara national regional state is
4.5 members per household; the total number of household heads in the study area is estimated to be
2,545,777 household heads.

The minimum required sample size was calculated using an electronic sample size calculator (with a
5 % margin of error, and 95% confidence level); and it is found to be 422 (including 10% non-
response rate). The total number of households who answer the questionnaires was 384.
The multistage cluster sampling method was adopted as the best way of selecting the respondents
of 384 households for the study5 and probability proportional to size (PPS)6 random sampling
technique was used to select respondent households. The first step, the stratified sampling
procedure were used to put the study area into four main strata called zones; the South Gonder, East
Gojjam, Awi and West Gojjam zones including Bahir Dar town administration. The second step
was the selection of households from the four randomly selected zones to serve as the study units.
Then 105 respondents were selected from South Gonder, 108 respondents from East Gojjam, 50
respondents from Awi and 121 respondents from West Gojjam for the study according to their
population size to represent the total population of the study area. The third step was the selection
of the sample woreda from the selected strata. Therefore, each sample woreda were selected by
assigning a number to each woreda and two of the numbers were picked at random. The fourth step
was the selection of the sample kebele from the selected woredas. Unlike sample zone and woreda
selection, the purposive sample selection procedure was done in selecting the sample kebele because
the research needs different religious denominations living together within the sampled kebele and
considers both urban and rural households. Finally, the research was focused on selecting sample
respondents from each kebele at random to manage the research within the given time and limited
budget.

3.2 Data Types and Source

The study was mainly used primary data gathered from sample zones, woredas, kebeles and special
town administration in west Amhara national regional state. The questionnaire was translated into

5 Bryman, (2004) asserts that multi-stage sampling is preferably used whenever the aim is to interview a sample that is
to be drawn from a widely dispersed population such as national population, or a large region, or even a large city.
6
The PPS is used to determine proportional allocation under which the sizes of the samples from the different cluster are
kept proportional to the sizes of the cluster (Kothari, 2004).

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Amharic language and pretested to facilitate better understanding and the provision of adequate
information. Alongside, focus group discussions were held with each religious category. The study
was also augmented by secondary data obtained from various sources (books, journal articles,
proceedings, development plans, reports, special papers, etc.) and both quantitative and qualitative
data was used. Quantitative analysis cannot always reveal the views and opinions of people involved
in the response. Thus, the quantitative analysis of the survey data in the study is also being
complemented by qualitative data gathered from focus group sessions, selected interviews with
religious leaders and other relevant bodies.

3.3 Data Collection Procedure

Twelve enumerators were employed, 8 enumerators have diploma and the rest 4 has a bachelor
degree in different disciplines. Most of them are health extension workers in their respective kebeles
the reason why we select health extension workers as data collector is that health extension workers
have good communication with the households and the community considers them as a councilor in
house care.

The data almost collected through questionnaire at 4 zones, 8 woredas and 16 kebele residents of
both urban and rural households. For a head of family to qualify to participate in this study, the head
must be economically active, assume responsibility for the care of the household and must be of
sound mind. If in any household the supposed head does not meet these criteria, the researcher
would interview whoever assumed those responsibilities in the family; on condition that such a
person is a permanent member of the selected family.

The empirical analysis of the study was conducted using both descriptive statistics and multiple
regression analysis. Result discussion based on descriptive statistics was made by using measures of
central tendency and dispersion like mean, standard deviation, variance and the like. In addition,
ratios, percentages and tables were also used.

3.4.1 Model Specification and Variables

One way to model a household’s savings decision would be to consider only cross-sectional
information. The basic estimation framework for the empirical discussion of a household’s decision
on how much and whether to save or not may then specified. To measure the impact of religion on

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household saving behavior, we estimate, based on the nature of the dependent variable, mainly two
different models were used.

1. Standard linear regression model estimation equation is given as

Si = α0+ α 1raff i + α 2rati + α3Ri +α4hnipm+ α5gen + α6irp + α7edu i + α8fs + α9age + α10w + α11msti+
α12res+εi ------------------------------------------------------------------------------------------------- (1)

Where savings as a dependent variable (S), religion affiliation (raff), religious attendance (rat), religion
identity (Ri), household net income per month (hnipm), gender (gen), household accepting interest
payment (irp), level of education (edu), family size (fs), age, marital status (mst), wealth (w), and
knowledge about saving interest payment(res).

2. Probit regression

We use the probit model as it predicts probabilities for binary dependent variables. According to
different econometricians, in the choice between the logit and probit models no significant difference
in the results and therefore selected the probit model. The probit uses the cumulative distributions
function whilst the logit uses the cumulative logistic function. The main difference between the
models is that the logit has slightly flatter tails that is the normal or probit curve approaches the axes
more quickly than the logistic curve. According to econometrics books the two models give similar
results and the choice of one model over the other is mainly based on researcher choices. We define
the probit model as

S* = β+Xα +εi, ε ~ N (0, 1) ………………………………………….……. (2)

If S* > 0, S= 1
If S* ≤ 0, S= 0
Where S* is a binary number (either 0 or 1), β is a constant term common to all individual
households, X the explanatory variables, α is calculated estimates of the coefficient of explanatory
variables and ε the error term, all this under normal distribution.
Given the nonlinearity of probit models, that is the relationship between a change in the value of an
independent variable and the estimated change in the probability of a positive outcome cannot be
distinguished directly from the variable’s coefficient, not only a probit model was estimated, but also
the marginal effects. The marginal effects, i.e. the partial change in the probability, were computed
by taking the partial derivative of Equation (2) with respect to xi:

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The marginal effect of an independent variable xi is the slope of the probability curve relating xi to
Pr(S*=1|x) holding all other x constant. Thus, the partial effect of xi on Pr(S*=1|x) depends on x.
The derivative is estimated at a point that is usually, and by default, the means of the independent
variables. The marginal effect for dummies is not obtained by differentiation, other than as a
difference of the predicted value at 1 and predicted value at 0.

3.4.2 Variables Included in the Model

Religion as belief identifier
To use Religion as belief identifier has its merits and demerits. The merits are that the groups are
easily identifiable and that there are some shared values within a group. It is also relevant because
religious norms tend to attach more than other cultural traits and religious belonging is highly
invariant over a person’s lifetime (Guiso 2006). The demerits are that the cultural values intertwined
in the religious gospel can be separated from its religious roots. “Religion” was asked to all sample
household heads as what is your religion? The answers were categorized under the following five
groups: Orthodox, Protestant, Catholic, Muslim/Islam, Traditional and Others. Orthodox Christianity
includes the “Tewahido”, “Kibat”, & “Tsega”, while Seven Day Adventist, Pentecostal, Lutheran,
Baptist, Anglican, Presbyterian, “Meserete Kirstos”, “Mulu Wengel”, “Kale Hiywot”, were
categorized under the Protestant category. Jehovah’s, Behais, Jews, Hindus, etc. fall under the other
category. Those respondents who answered simply “Christian” as their religion were further asked to
identify themselves either as Orthodox, Protestant or Catholic Christian.

Savings as a dependent variable

To construct an ideal saving rate one would need detailed information on consumption and
disposable income such that savings can be calculated as everything you do not consume per a given
time period.
The dummy variable on savings for the probit regression derives from the question Do you usually
have an amount of money left over at the end of the month that you can save for bigger purchases,
expenses of emergency or to acquire wealth?

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Control variables

Household net income is the summed monthly income of all members of the household of farm
activities, wage, house rent, business activities, … etc. after deductions for taxes and social security
and is self-reported by the household. Since a household’s decision to save money is influenced not
only by the income but also by the endowment in other assets the variable Wealth is considered
(Duesenberry 1949). This variable is generated from the holdings of owner-occupied housing, other
property that is financial, business, tangible assets, personal pensions (including life insurance) and
consumer credits at the household level. The gender of an individual is assigned the binary number
one if the individual is male and zero if it is a female. Generally, studies suggest that men are more
able to save. For example, Lusardi, Mitchell (2007a) showed that women were usually less
financially informed than men, and financial literacy was found to persuade the level of saving.
Some studies have shown that women are less likely to have a defined retirement saving plan
(Sunden, Surrette, 1998). Age is included as research claims that these variables are significant in
forming saving behavior and influences negatively younger’s respondents save more than old
household heads(Modigliani 1985, Sundén and Surette 1998). Level of education is included as it
has a strong correlation with the income level. Bernheim, Maki and Garret (1997) found that
students who are exposed to financial curricula and learn about budgeting and savings in school
grow up to save more. As there is no information on this available we have to satisfy with the degree
of education attained. Household size is important to look at as several individuals living together
within a household. Household’s characteristics are also relevant to check for as it is reasonable to
believe that it has an effect to have children and especially to have children living at home. It can be
assumed that savings are smaller the larger the number of children in a household (Freyland 2005).
The variable Religious attendance, participation in religious services may also alter an individual’s
savings preferences and opportunity sets. Participants, who focus religious activities frequently,
internalize religious rules related to economic behavior much stronger than religious individuals who
are less strong involved, since religious human capital (Iannaccone, 1998), demonstrates the
regularity with which an individual attends religious events and ranges from more than once a week
to yearly. By using this variable we detach the private individual practice from the possible network
effect intertwined with shared public practice.

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Proceeding to running the above specified models, all variables were checked for the existence of
data problems mainly the outlier problem, multicollinearity problem; hetroscedasticity problem and
correction measures took place for each problem.

4. DATA ANALYSIS AND INTERPRETATION

4.1 Descriptive Analysis
The sample kebeles have about 18,511 households of which 9,289 are rural households and
8,643(46.7%) of them were female. A total of 384 religious household heads was randomly selected
for this study. From four zones eight wordas and sixteen kebeles 244 Orthodox Christians of which
79 were females, 135 Muslims of which 33 were females, and 5 Protestants of which 4 were
Females. The average family size of the sample population 4.4 people which were lower than the
national average of 5 persons (CSA, 2007) and of which each category of household family size is
4.2, 5 and 4 persons for an Orthodox Christian, Muslim and protestant respectively. The largest and
smallest family size of the sample households’ is 10 and 1 respectively. The sample result also
shows that 64% of the total respondents are within the age range of 35 to 65 years, 33% of
respondents are within the age range of 20 to 35 and the rest 15% of respondents are above 65 years.
The minimum and maximum age of the respondents is 21 and 95 years respectively, with a mean age
of 42 nearly similar in both urban and rural areas in both religious categories. When the age
distribution is separately examined, 60%, 70% and 40% of Orthodox Christian, Muslim and
Protestants respectively are within the age range of 35 to 65. Of the total 384 religious respondents
283 (74%) are married, 61 (16%) are widowed and divorced and the rest are single households.

Household saving, income and expenditure patterns

Household savings is value put aside at the time of survey by households. According to the survey
data, results revealed that 62.5% of them had savings and the rest not. Among surveyed households,
the average amount of household savings was 317 Birr with standard deviation of birr 965. The
lowest saving level among the savers was 0 Birr and the highest reaches 10,000 Birr per month.
While the average amount of household income was 3,316 Birr with standard deviation of 17,108
Birr and the lowest income level among the households were 205 Birr and the highest reaches
317,400 Birr per month. The total monthly consumption expenditure of sample households ranged
from Birr 205 to 16,721, and the mean and standard deviation of expenditure was 1,807 and 1,629
respectively. On the other hand, the average amount saved by the individuals of the different religion

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followers and the percentages of religious affiliated people which decided to save money exclusive
of considering personal characteristics, on average, Orthodox Christians’ seem to save more than the
Muslims and Protestants respectively. Our data show that Protestants save the fewest with respect to
the amount saved but Protestants seem to save more than the other group respondents with respect to
the proportion of savers and Non savers i.e. for a total of 5 Protestant respondents 80%, for a total of
244 Orthodox Christians’ 66% and from 135 Muslim respondents 55% were savers.

Impact of Religion on Expenditure patterns

Increase and decrease in the households’ expenditure is one of the indicators of saving impact on the
life of the religious members’ households. Comparison on families’ expenditure 7% out of total
monthly net income and 7.3% out of total monthly expenditure of Orthodox Christian, 10% out of
total monthly net income and 11% out of total monthly expenditure of Muslims and 9% out of total
monthly net income and 12% out of total monthly expenditure of protestant households were expend
for religious purpose. While total monthly expenditure consumes 92% of Orthodox Christians, 88%
of Muslims and 80% of Protestants average monthly net income. While from the total sampled
households, the proportion of Orthodox Christian and Muslim households with mean average
propensity to consume for religious purpose was 0.151 and 0.124 respectively. The result reveals
that Orthodox Christian households were relatively higher in their average propensity to consume
mean than Muslim households. The result of independent sample t-test discovered that there was
statistically significant average propensity to consume mean difference of 0.027 between Orthodox
Christian and Muslim households at 1% significance level (t-value= -2.4267, P-value= 0.007).

4.2 Results of Econometric Analysis

The Regression results for the model of the impact of religion on household saving behavior in West
Amhara national regional state is reported below. Saving amount(sc) as continuous and Saving as
dummy (sd) variable are regressed on religious affiliation, religious identity, religious
attendance(dummy’s), household net income, household wealth, age, gender (dummy), level of
education (dummy), family size, accepting interest payment (dummy), marital status (dummy), and
others are included in the regression model. The analysis was done in two steps. First the binary
decision whether to save money or not saving as dummy variable using probit model and the
second on the decision how much to save, saving as continuous variable using ordinary least
square (OLS) model. Three regression models are used, first analyzing the impact of belonging

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to the Christian religion, afterwards analyzing the impact of religious attendance as a measure of
religious believing and this is followed by the regression of the impact of distinct religions on saving
decision. Marginal effect also analyzed for the binary decision whether to save money or not.

4.2.1 Does religion membership affect saving behavior?

4.2.1.1 Religious Affiliation and Household saving
Regarding the decision to save or not, the likelihood wald chi-square of 85.94 with a p-value of
0.000 and the decision how much you save, R- squared 46 percent with p-value of 0.000 respectively
tells us that our model as a whole is statistically significant; it fits significantly better than a model
with no predictors. The result reveals that Christian religious affiliated people seem to have in
general a higher probability to save money than other religious affiliated people. As Keister, (2003)
explained, religious doctrine seldom discourages saving our results also show that the probability of
Christian religious people more likely to save money than non-Christian religious people. The
predicted probabilities for having monthly savings are 8.6 percentage points higher for Christian’s
religion followers relative to the non Christians. When looking at the amount saved by religious
affiliated people in general, People belonging to a Christian religion seem to save 68 Birr more than
non- Christian religious people. Both results are statistically significant at 10 percent significant
level. This result supports 1Timothy 5:8 says those who give and do not save for the needs of their
family may eventually become a burden to the church and also Luigi Guiso, Paola Sapienza, Luigi
Zingales, (2006) found that Christian religions are more positively associated with attitudes
conducive to economic growth.

Income and saving behavior

Regarding the control variables, an increase in the net monthly income by Birr 1,000 raises the
probability to save by 10.5 percentage points and the amount saved increased by 142 Birr.
According to Keynesian theory of consumption, there is positive relationship between current
income and saving. Our result matches with Keynesian, (1936) theory that current income has a
positive relationship with the saving of the household. It is statistically significant at the one percent
level of significance, telling that household saving is significantly affected by the current income of
the household. This reveals that large and rapid increase in income tends to raise the rate of
household savings because the households’ capacity to save increases with household income.

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Gender and saving behavior
The relationship between gender and mean average propensity to save is positive 0.05 and the
probability of saving is also positive (21.4 percentage point) both significant at less than one percent
significance level, indicating that male have a higher probability and mean average propensity to
save of having positive saving as opposed to female, ceteris paribus. This finding supports the
prediction that there is a significant difference among male and female in terms of their saving
behavior. This explanation conform the findings of other researchers such as Lusardi, Mitchell
(2007a), showed that female were usually less financially informed than male, and financial literacy
was found to influence the probability of having positive saving. This is consistent with studies that
have shown that females are less likely to have a defined retirement saving plan (Sunden, Surrette,
1998). Other Studies have shown that historically, females have been dependent on males for their
financial security (Schmidt, Sevak, 2006), which may be a likely explanation for the results of this
study. Furthermore, there is a sizeable gap between the two genders in terms of financial resources
such as saving, pensions, and after-retirement earnings. Results also relate to past research which
showed that poverty rates were significantly higher among female in all the developed countries
(Burnes, Schultz, 2000).
Education and saving behavior
Household head is considered as a decision maker in the house. In decision making process his/her
education has its own contribution in the household. So the question is that how his/her education
affects the saving behavior of the household. In this section the study makes analysis taking the
household’s head education alone. Household heads have different level of education.
Illiterate - the effect of household head illiteracy on saving behavior of the household was analyzed
and the result shows that the coefficient on illiterate has negative sign. The household head
education has statistically significant impact on saving behavior of the households. Its effect on
saving is statistically significant and negative. It shows that people who are illiterate a 38.6
percentage points less probability to save than people who achieve above diploma. Moreover,
illiterate household head saves Birr 156 less per month than people who got above diploma.

Primary education of household head - The household head education level has statistically
significant impact on saving behavior of the households. Its effect on saving is statistically
significant and negative. It shows that people who have primary education completed 18.8

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percentage points less probability to save money than people who got above diploma. Moreover,
they save Birr 163 less per month than people who complete above diploma.

Hence, education level has a positive impact on individual saving behavior. Higher education levels
imply that people have a better understanding of their personal financial issues, so they will be better
able to make financial decisions and have more ability to plan for their future. This finding supports
Hogarth, 2002 explanation about education and financial decision that more educated people can
manage their money in terms of insuring, investing, saving and budgeting.

Whereas, family size seems to affect the decision whether to save or not, the negative and significant
relationship between family size and saving is obviously stand true as family size increases most of
the income would consume and less would be saved. While no significant effect was found for the
amount saved. With an increase in the family size by one person, the propensity to save declines by
5.1 percentage points.

4.2.1.2 Religious Attendance and Household saving

Since the decision to save seems not only to be influenced by one’s religious affiliation, we now take
a closer look at the variable religious attendance. Assuming that people going to church/mosque do
believe in the teachings of a certain religion, we use the frequency of attending religious services as
a measure of religious believing. Regarding the decision to save or not, the likelihood Wald chi-
square of 62.58 with p-value of 0.000 and the decision how much you save, R- squared 49 percent
with p-value of 0.000 respectively tells us that our model as a whole is statistically significant; it fits
significantly better than a model with no predictors. The data show that the more often people going
to church/mosque, i.e. the more religious they are, the lower is their propensity to save money.
People going at least once a week to church/mosque have a probability to save money decreased by
9.3 percentage points and people going at most once a month their probability to save decreased by 5
percentage points.

The result shows that people going at least once a week to church/mosque seem to save less money
than people attending at most once a month at 10 percent significance level and regarding the
amount to save, people going at least once a week to church/mosque decreases their saving by Birr
60 per month. And people going to church/mosque at most once a month increase their saving by
Birr 3 per month. The result reveals that people going at least once a week to church/mosque have a

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4.3 percentage points lower probability to save money as compared to people going at most once a
month to church/mosque.

Regarding the amount saved comparison between the two group, people going at least once a week
to church/mosque seem to save less money than people attending at most once a month which is
people going at least once a week to church/mosque save Birr 60 less per month than people
attending church or mosque at most once a month. This might be explained by the fact that people
attending more often might either loses their working time that generate income or expend extra
money for religious purpose. The results indicate that there are statistically significant differences
between attending at least once a week and attending at most once a month. However, the effect of
attending church/mosque not only on the probability of saved but also on the amount of money
saved by the individuals is not always statically significant.

Concerning the control variable wealth, it is clear that the wealthier the family is the more they save.
An increase the net value of the whole assets by Birr 1,000 increases the amount of money saved by
50 cents only. This might be explained by the fact that especially religious people spent their money
on non economic return bearing asset forms, a non-productive or non-earning asset is one that does
not generate income. An excess of non-earning assets influences household earnings in a negative
way. (Richardson, 2002)

Interest Payment and saving behavior

Accepting interest payment for saving accounts from financial institution increases the probability to
save by 13.5 percentage points and the amount of saving by Birr 86. The result is also statistically
significant at 5 percent and 10 percent significant level respectively. This might be clarified by the
fact that especially those people who are accept interest payment for their saving account faced with
a higher uncertainty regarding the future and therefore might save more of their available money in
the present to escape against these uncertainties.

To sum up, Religious membership seems to have an effect on saving behavior where those that are
part of the Christian affiliated people save more in comparison to the non Christians. All these
results show to more significance to be entirely reliable. However, being actively dedicated to one’s
religion is less important for economic behavior than just being religiously affiliated.

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4.2.2 Is there a difference in saving behavior between Orthodox Christian and
Muslim?
Among the total sampled households, the proportion of Orthodox Christian and Muslim households
with mean average propensity to save was 0.075 and 0.046 respectively. This indicates that
Orthodox Christian households were relatively better in their mean average propensity to save status
than Muslim households. The result of independent sample t-test revealed that there was a
statistically significant mean average propensity to save difference of 0.029 between the Orthodox
Christian and Muslim households at less than 5 percent significance level (t-value= -1.6311, P-
value= 0.05).

On the other hand, regarding the decision to save or not, the likelihood Wald chi-square of 79.58
with a p-value of 0.000 and the decision how much you save, R- squared 49 percent with p-value of
0.000 respectively tells us that our model as a whole is statistically significant; it fits significantly
better than a model with no predictors. The predicted probability of Orthodox Christian saving
money on a monthly basis shows that the probability of Orthodox Christians are 8.1 percentage point
more likely to have monthly savings as compared to Muslims in a ceteris paribus comparison. There is
strong support for the result that Orthodox Christians are more likely to save and save more
than Muslims.

The OLS regression reveals that, Orthodox Christians have 84 Birr more saving than Muslims per
month for significant values at 10 percent significance level. Our results show different
equilibriums for Orthodox Christians and Muslims suggesting different cognitive constraints, partly
value-based and probably amplified by peer-effect, in the decision making regarding savings. Hence
there is strong support for the result that Orthodox Christian households are more likely to save and
save more than Muslim households in a ceteris paribus comparison. This might be explained by the
fact that Muslim households might either lose their working time that generate income due to
frequent preying or non incentivized saving behavior in financial institution due to complete banning
of interest payment or expend extra money for religious purpose. Our findings speak in favor of the
shared mental model theory of Denzau and North (1994) in that religious group that self-identify to a
number of norms, values and beliefs share observable similarities, which is arguably an outcome of
coherent mental models.

To sum up, a total of 12 explanatory variables were considered in the probit and OLS econometric
model out of which 8 variables were found to be significantly influence the saving performance of
the sample households. These variables include; religious affiliation, religious identity, religious

2 0
attendance, net monthly income, household head education level, accepting interest payment, age,
gender, motive of savings and marital status were found to have significant influence on not only the
probability of savings but also the amount of savings for the whole respondents. Thus, an
individual’s religious belief influences savings decisions mainly through channels, such as, income,
saving motive, gender, educational attainment, the family size etc. The econometric findings lend
support to the role of economic variables in explaining the capacity to save, while religious effects
appear to play an important, though not always dominant role in determining differences in
household savings.

5. Conclusions
Basically domestic saving is determined by many factors. The researcher focused on the
demographic factor i.e. the effect of religion. Regarding the decision to save money differences exist
within the Christian religions compared to non-Christians. Although the decision whether to save
money seems to be significantly influenced by one’s religious affiliation, statistically significant
effect was found for the influence of one’s religious affiliation on the decision concerning a certain
amount of money to save. That is people belonging to a Christian religion are at least 8.6 percentage
points more likely to save money than non-Christian religious people. With regard to the impact of
attending church/mosque on the savings decisions different pattern occurs. The more often people
attending religious services, the lower is the probability to save money. With respect to the amount
saved, again significant effects could be found. Comparing the impact of religious belonging,
measured by one’s religious affiliation, and religious believing, measured by attending
church/mosque, the results show that believing seems to matter more. People, who is going to
church/mosque, at least once a week, decrease their saving by 9.3 percentage points, and people
going at least once a week to church/mosque decreases their saving by Birr 60 per month. And
people going to church/Mosque at most once a month increase their saving by Birr 3 per month. The
result reveals that people going at least once a week to church/mosque have a 4.3 percentage points
lower probability to save money as compared to people going at most once a month to
church/mosque.

Regarding the amount saved, people going at least once a week to church/mosque seem to save less
money than people attending at most once a month which is people going at least once a week to
church/mosque save Birr 60 less per month than people attending church or mosque at most once a
month and that Orthodox Christians save more than Muslims.

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Thus, the impact of religion on household savings decisions significantly depends on explanatory
factors such as religious affiliation, religious identity, household net income and educational
attainment affects positively and religious attendance and family size affects negatively. If the
positive effects of religiosity might be used for economic concerns. Only if a peaceful and respectful
contact is encouraged, as a result economical benefits are possible.

6. Policy Implication
Religion is best understood at the level of spiritual life. In a society and has always been the cause of
divine concern. It is like every factor can have a positive and a negative impact on society. Its unique
place in our society whose sole official purpose is the ethics and morals of humanity that gives it, it’s
an awesome responsibility. However, the following policy recommendations can be drawn for
improving household saving behavior.

Domestic saving and investment in Ethiopia has improved but the gap stayed wide. Religious rules
take some parts of the problem to address this; the pattern of investment should be changed with an
objective of promoting employment, reducing inflation and an increase in government investment in
social security and retirement. Besides Promoting savings through various incentives such as totally
or partially exempting the income tax collected from bank deposit interest income for the total
saving account or saving up to a certain level and rising saving interest payment to become religious
people indifferent, a rise in interest payment makes saving more attractive because of the interest
earned from savings.

Religious affiliation and attendance influence the pattern of saving money, the expenditures and
impact on income of the household, the government should utilize them as a tool in the awareness
creation and improve saving behavior of the society. Because most religious low educated and low
income households that save in very different ways than more educated and well off households, it
should be important to target these groups and devise programs that are better modified to their
needs and barriers to saving. The most pressing need lies with education. It is critical that individuals
are suitably equipped to make informed decisions about financial alternatives. Without ignoring the
desires and consumption pressures of low income religious households, people should be given
access to financial education programs. Such programs should be designed to disseminate
information in user-friendly ways and to provide fertile ground for behavioral change. Not only

2 2
should the information be directed at an awareness of available financial instruments and the value
of savings, it should also build in adequate warning against falling into excessive debt patterns.

The large majority of religious households in rural were found to be illiterate households get very
little financial literacy support from religious institution and government in terms of income
generating activities, consumption, saving, asset accumulation, etc. Thus, it should be important to
conduct financial literacy hand in hand with enhanced for households. Improving household income
using an integrated approach to development endeavors also will help comprehensive manner. It
should also be very essential to introduce home and community based financial literacy program not
only in rural areas but also in urban areas that households will get early physical, social, mental and
emotional stimulation.

Even article 11/1995 of Ethiopian constitution states ‘state and religion are separate, there shall be
no state religion, the state shall not interfere in religious matters and religion shall not interfere in
state affairs’. Yet a good opportunity is the establishment of Inter Religious Council of Ethiopia
‐

(IRCE) that works together on national peace and development concerns. The Council works in
collaboration with government, non government organizations and the civil society. By using this
‐

council religious institution, as to the future fates of improving saving behavior, it should continue as
complementary activity in the religious education system (preaching) keeping in view of overcoming
the observed negative impact of religion on household saving behavior indicated in the preceding
sections of the study.

Government institutions should recognize the contribution of religious institutions in the

development process of a nation because these institutions embrace the society and have a channel to
disseminate development programs. Simultaneously, religious organizations should show their
readiness in mobilizing their followers towards the fight against dis-saving behavior, poverty and
backwardness.

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God knows …
The end
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