SAVING

Saving is the mechanism by which people meet

their future needs or consumption.
• Basically, income is the primary determining
factor of saving. In economics term saving is
equal to income minus consumption.
• Consumption means the process of using up
goods and services to satisfy our needs and
wants

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The aim of saving is to satisfy the future interests of
individuals. Moreover saving is the key
instrument to sustain the life of a person and
plays an important role in the economic
development of a country.
Factors That Affect Saving in Ethiopia
• Extravagant practices and unplanned life
• Expensive traditional practices and religious
dogmatism
• Absence of family planning.

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• Saving does not mean only accumulation of
wealth, it also require considering one’s own
consumption pattern. Consumption is the using of
foods, energy, and other resources to satisfy our
needs and wants. Our consumption pattern does
not only affect our saving but also the
environment and natural resources.
• Saving is affected by the level of consumption

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Extravagance
• It excessive or unreasonable spending of money
and resources.
• The habit of saving in Ethiopia is poor.

• Autarky is a policy of strict self- reliance of

countries. It is a national policy of economic self-
sufficiency. E.g in food, energy and technology.

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Traditional and Modern Institutions of
Saving in Ethiopia
Saving institutions are divided in to two
1/ Traditional are established by the
community in order to save money. The
structure and system of traditional saving
institutions are different from one area to
other area.
• In Ethiopia there are both traditional and
modern institutions of saving.
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• Examples of traditional saving institutions are
Equb and Iddir.
• Equb is a mechanism by which a group of people
come together and contribute an equal amount
of money every month, week the total amount of
money collected in one month/ week/ is given to
one person then the following amount collected
will be given to the next person this process will
continue until all members of the group receive
their money. It is forced saving institution.

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Modern Saving Institutions
• Banks are financial institutions that are used for
saving and borrowing money with interest
• Deposit: - money that kept in the bank.
• Depositor: - a person or institution who keeps
money in a bank.
• Insurance: - an institution that cover risk
against accidents. The insurance company will
cover your expense in case of emergency
according to the initial agreement.

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• The working of insurance companies is similar to
that of Iddir since you get the service in case of
emergencies.
• Premium: - is the amount of price paid for an
insurance policy.
• Indemnification is the amount paid to the
insured to restore the person to his/her former
financial position.

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Saving, Investment and Development
• Investment is the mechanism by which one spend
money on capital goods in order to get profit,
expand business and bring about development. It
is essential in the process of development.
• Investment depends on saving and saving requires
a sacrifice of current consumption.
• Banks play a significant role in the accumulation
of capital

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 Low
Productivity
 

Low capital
•
 
 
 

Low Saving Low

  Income
 
 
 
 

Low Investment
And development
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• Iddir is traditional saving institutions that give
services in case of emergency/accident/
• When a family member dies the Iddir gives
service. This is a means of saving because the
mebers contributes money for future use. These
two saving methods contribute to alleviate or
reducing social problems.

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