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Advances in Social Sciences Research Journal – Vol. 11, No. 2.2
Publication Date: February 25, 2024
DOI:10.14738/assrj.112.2.16422.
Sahudin, Z., Ridzuan, A. R., Razak, M. I., & Bahrudin, N. Z. (2024). Determinants of Household Savings. Advances in Social Sciences
Research Journal, 11(2.2). 347-362.
Services for Science and Education – United Kingdom
Determinants of Household Savings
Zahariah Sahudin
*Corresponding Author: zahariah128@uitm.edu.my
Faculty of Business and Management, Universiti Teknologi MARA, Malaysia
Abdul Rahim Ridzuan
Institute for Big Data Analytics and Artificial Intelligence, Universiti Teknologi
MARA, Malaysia
Mohamad Idham Md Razak
Faculty of Business and Management, Universiti Teknologi MARA, Malaysia
Nur Zahidah Bahrudin
Faculty of Business and Management, Universiti Teknologi MARA, Malaysia
ABSTRACT
The household savings growth in Malaysia has shown a great declining trend
annually. The main causes of these deteriorating patterns could have been due to
low-income levels, overspending, economic conditions as well as uncertainties that
people are facing daily. In deliberating this issue further, this study has empirically
examined factors affecting household savings in Malaysia. The analysis was based
on time-series data gathered from World Bank Data and the Department of
Statistics of Malaysia from 1970 until 2020. The time series regression analysis was
used to examine the significant influence on the dependent variable, savings, by
independent variables, which consist of income level, interest rate, and money
supply. The findings from this study revealed that income level and money supply
have significant positive influences on savings, while interest rate has an
insignificant influence on savings. Through these findings, policymakers have to
formulate a suitable policy that can cushion the impact of macroeconomic variables
on the level of savings in the country.
Keywords: Income, Interest rate, Money supply, Inflation rate, Savings.
INTRODUCTION
The COVID-19 pandemic has disrupted the global economy, affecting people globally as their
lives have dramatically changed (Rabbani et al., 2021). During the pandemic, businesses were
forced to close, and movement was severely restricted, causing most revenue and profit to
plunge and pressuring the labour market. The pandemic reportedly caused a steep decline of
about 6.5% in the world’s economic growth between 2019 and 2020. The three most severely
affected sectors during the pandemic are global tourism, logistics, and financial industries
(Onyia, 2021). In Malaysia, the Movement Control Orders (MCOs) affected the Malaysian
economic sectors, causing many productive members to become unemployed, reducing salary
and working hours, or involuntary separation schemes (Department of Statistics Malaysia,
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Advances in Social Sciences Research Journal (ASSRJ) Vol. 11, Issue 2.2, February-2024
Services for Science and Education – United Kingdom
2020). From here, it causes the total employment affected 14.88 million, increasing the
unemployment rate to 5.1% in the second quarter of 2020 (Department of Statistics Malaysia,
2020).
The pandemic has revealed an enduring issue of insufficient savings, exacerbating Malaysians’
lacking awareness of keeping long-term financial savings. This issue has become a topic of
interest in the Malaysia National Strategy for Financial Literacy (2019-2023) (Financial
Education Network, 2019), which reported that only 84% of Malaysians have savings for short- term emergencies, as opposed to long-term savings. Most Malaysians would use their funds
during month-end to help with their daily expenses. Even though 76% of Malaysians practice
budgeting, 40% cannot sustain their spending within their budget. Astoundingly, 20% of
Malaysian working adults do not have enough savings for six months of use at the time of the
study. As reported by Bank Negara Malaysia, a mere 6% of Malaysians have a 6-month worth
of emergency savings (Abd Rahman, 2019). In 2019, gross national savings (GNS) dropped to
24.9% from 26.7% and 29.2% in 2018 and 2017, respectively (Bank Negara Malaysia, 2019).
However, this decline is “inevitable”, as the prolonged reliance on consumer spending has
driven economic growth over the last few years. Still, this is a worrying situation, as it shows
that Malaysians do not have enough coffers to sustain their living, forcing them to exhaust their
savings. Based on these reports and the current situation, most Malaysians are severely
underprepared for income shocks or emergencies.
The COVID-19 pandemic has highlighted the critical need to prepare sufficient savings during
stable times for emergencies. Savings also promote long-term economic development (Jamal &
Sultana, 2023; Chalimah et al., 2019). Based on the official reports, Malaysians' savings would
last between one to four months during the outbreak (Department of Statistics, 2020).
Nevertheless, Malaysians’ saving habits are still unsatisfactory (Ying & Jamal, 2023; Credit
Counseling and Management Agency, 2018). More alarmingly, the number of people under the
age of 35 who were declared bankrupt rose annually. In this context, it is critically important to
understand the reasons for stimulating the saving behavior of the younger generation in
Malaysia to ensure the robustness of the national economy for future economic shocks.
Therefore, savings are crucial in all aspects of the economy. It is important for all levels, from
the government to the individual. Savings promote and contribute to an individual's financial
independence; hence they will have an impact on the country’s economic stability. Previous
research has also recommended that savings are closely related to retirement planning (Park
& Martin, 2022). When someone reaches retirement age, they do not have to worry about their
life because they have enough money for survival (Hu, Stauvermann, Nepal & Zhou, 2023).
Savings have a major and positive impact on the development of the country as well. Saving will
elucidate an individual’s financial health. Malaysians’ savings rate was 26.1% of GDP in 2020
and 26.3% in March 2022 (World Bank, 2021; 2022).
Meanwhile, the gross savings of Malaysians will be RM397.36 billion in 2021, slightly increasing
from RM388.86 billion in 2017. The reported savings rate includes mandatory savings in EPF
intended for retirement savings. Henceforth, without retirement savings, Malaysia’s savings
rate is moderately low. Synchronously, a survey by Statista Research Department (2019)
supports the statement of Malaysia's low savings. It indicates that 21 per cent of the
respondents do not have savings. On the other hand, 35% save less than RM500 per month.
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Sahudin, Z., Ridzuan, A. R., Razak, M. I., & Bahrudin, N. Z. (2024). Determinants of Household Savings. Advances in Social Sciences Research Journal,
11(2.2). 347-362.
URL: http://dx.doi.org/10.14738/assrj.112.2.16422
While the percentage of respondents that save between RM501 – 1000 is 23%. Of the remaining
respondents, 13% and 9% saved RM1001-2000 and above RM2001, respectively. A
longitudinal study by Capital Market Development Fund and Universiti Putra Malaysia (2020)
revealed that one-third of Malaysians have more debts than assets. In addition, slightly more
than half (52%) of Malaysians have insufficient income to fulfil their basic needs.
This report indicates that only a small percentage of Malaysians have savings for their future.
There are many factors affecting savings among Malaysians. These include a lack of awareness
of savings, high debts and commitments, high costs of living expenses, and low salaries, and
they tend to adopt a luxurious lifestyle (Surendran, 2018). Low savings is one of the major
problems faced by households in Malaysia. The savings are below the optimum level and
insufficient to survive if unforeseen circumstances, such as a financial crisis, happen. To
overcome this problem, the government has to promote awareness programs, such as
providing a good understanding of the future savings drivers at the micro-level. The program
has to work to give savings awareness to Malaysians.
Figure 1: Average savings per month of the respondents in Malaysia as of October 2019
Source: Statista Research Department, Oct 2019
Additionally, they must pay for their daily expenses to support their life due to the increase in
consumer goods prices. Hence, they also cannot save for their retirement. If the government
does not create awareness and take initial steps to promote savings, this situation will be worse.
Many awareness programs must be done and implemented to overcome this problem. Having
high debt is another influencing factor that affects savings behavior. Moreover, lower income is
another factor that affects savings behavior. Due to their low income, they have to commit
themselves to short-term or long-term debt. Debt eventually will reduce their income, and they
may not be able to pay their debts.
Another survey conducted by the Department of Statistics Malaysia in 2020 reveals that nearly
three-quarters of private sector respondents only have savings of less than one month if
anything happens to them. For instance, they are being terminated from their current job.