Saving behavior and associated factors: Evidence from Ethiopia

This study examines saving behavior and associated factors among rural households, emphasizing the association of risk and time preferences alongside demographic and socio-economic factors. Using a mixture of lab-in-thefield experiment and survey data, and applying a multistage sampling approach and employing a probit regression model, the study analyzes savings behavior among 547 randomly selected rural households in Tigray, Ethiopia. Findings demonstrate that risk aversion significantly increases the likelihood of saving, whereas a higher discount rate (impatience) is negatively associated with the decision to save. However, the joint role of risk and time preference is statistically insignificant. Even though the joint effect doesn't add new predictive value, the independent risk preference and time preference hold a strong association with the outcome variable (savings behavior). Overall, findings highlight risk and time preferences as the principal factors associated with savings decisions in this context. These results imply that policies aimed at increasing rural household savings should go beyond traditional socioeconomic interventions and explicitly account for behavioral heterogeneity.