Household savings performance has been of great interest to researchers as a result of its close association with supporting an environment conducive to investment and economic growth. South African savings rates have been declining with household savings showing a significant deterioration over the past two decades. Policymakers are primarily occupied with investigating methods to encourage savings and control consumption levels. However there remains some ambiguity regarding the variables that impact household savings behaviour. Higher domestic savings can assist with improving South Africa’s GDP growth rate, which has not realised the expected targets in recent years.
The Vector Error Correction Model approach was applied to determine the long-run impact of certain variables on the household savings rate and household debt ratio. The study employed annual time series data over the 20-year period 1994 to 2013. Variables that were studied in relation to the household savings rate included youth dependency, elderly dependency, financial liberalisation and financial deepening. The impacts of financial liberalisation and financial deepening were also examined against the household debt ratio.
Findings revealed that household savings are negatively impacted by youth dependency. Results for elderly dependency and financial deepening had weak explanatory power on household savings. Financial deepening was found to significantly increase household debt levels whilst the results concerning financial liberalisation were inconclusive for both the household debt and household savings variables.