Arithmetic of Savings Essay

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The Arithmetic of Savings The work reflects on one of the binding constraints inhibiting South Africa’s development and transformation: a chronic lack of national saving. We argue that the South African lack of savings is a reflection of an overall lack of ‘future orientation’ of South African economic agents, households, firms and the government, which is reflected in a contemporaneous weakness in private investment; a high reliance in the credit market to finance successive consumption booms; and a set of government policies which de-facto moves future resources to support present consumption. Determinants of savings behaviour: Means, culture or a little bit of both? To meet growth targets, aggregate savings must increase. Failure to save adequately is frequently attributed to a lack of ‘savings culture’, with the majority of South Africans saving very little, if at all. The indictment constantly levelled at the poor black majority is rarely linked to the microeconomic data on income dynamics at the individual level. We review the current debate on savings in South Africa which is characterised by two equally fallacious approaches. The first approach, which we call cultural determinism, attributes the lack of savings to a lack of ‘saving culture’ by the poorer section of South African society. One aim of this report is utilise micro level data to expunge notions ‘that the poor do not save enough’ as an excuse for dull economic growth in the South African economy. Contrary to popular rhetoric, it will also become evident that when conditioning on necessary differences in income and other socio-economic variables as well as household composition, race (as a poor proxy for what might commonly be perceived as ‘culture’) is not a useful explanatory variable when considering what might determine savings behaviour. A second approach, what we call access to finance

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