Background to the Study
According to Uremadu (2006), savings can be defined as “the amount left over when the cost of a person’s consumer expenditure is subtracted from the amount of disposable income that he or she earns in a given period of time”. Saving, therefore, is the decision to defer consumption and to store this deferred consumption in some form of asset (Aghevli, et al., 2005).
Savings is described as a financial assets accumulated by the public- both government and private agents in the organized financial system (Tochukwu et al., 2008). Saving naturally play an important role in the economic growth and development process. Savings determine the national capacity to invest and thus to produce, which in turn, affect economic growth potential. Low saving rates have been cited as one of the most series constraints to sustainable economic growth. Growth models developed by Romer (1986) and Lucas (1988) predict that higher savings and the related increase in capital accumulation can result in a permanent increase in growth rates.
The close relationship between the savings rate of the economy and the economic growth is stylized feature which has been well documented in number empirical investigations. This is result which has been found in several sensitivity analysis, although it is emphasized that causality should be inferred from this positive growth literature, example, Leveine and Renelt (1992) and Sala-i-Martin (1997).
Saving refers to the part of income not immediately spent or consumed but reserved for future consumption, investment or unforeseen contingencies, it is considered as an indispensable weapon for economic growth and development. Its role is reflected in capital formation through increase in capital stock and the impact its makes on the capacity to generate more and higher income Onuoha, (2013).
Savings can also be known as a sacrifice of current consumption that provides for the accumulation of capital, which in turn, provides additional output that can potentially be used for consumption in the future Onuoha, (2013). In other words savings is the difference between current earnings and consumption. We can also define savings as the deposit and saving ability acquired by the organized financial institution including bank and non-banking financial intermediaries or it is described as a finance accumulated by the public, both government and private agents in the organized financial channels. These financial assets include savings and time deposit in the banking institution provident funds, insurance premium stocks and bonds etc. the intermediation process involves moving funds from surplus sectors of the economy to deficits sector units(Nnann and Englama 2004). Nigerians savings still falls below the requirement of its financial system due to low per capital income, under investment in productive instruments, and investment in unproductive channels e.g. Gold, jewel, income inequalities and demonstration effects, etc.to remedy this problem depend on the level of development of the financial sector as well as the saving habit of the citizens. The availability of investible funds can be a starting point for all investment. In the economy which will eventually translate to economic growth and development (Uremadu 2006).
The relationship between savings, investment and growth has been very close, hence the unsatisfactory growth performance of several developing countries like Nigeria which has been attributed to poor savings and investment which has resulted to poor economic growth Onuoha, (2013). Domestic savings rates have not yet improved for better, thus worsening the already uncertain balance of payment position, the role of savings in the economic growth of any country cannot be overemphasized (Cheta 1999).
According to Cheter, (2014), a sound, and reliable financial system relates to savings mobilization and efficient financial intermediation roles: First, reduces hoarding and help spread the risk between household and firms, Second, lowers interest rates thereby bringing about stability in capital market, Third, they create liquidity in the economy by borrowing short-term and lending long-term, Fourth, disseminate information between ultimate lenders and ultimate borrowers thereby mobilizing savings from surplus units and channelling them to deficit units through the help of financial techniques, instruments and institutions. Fifth the intermediaries promote development investment.
According to Friedman (1952) the impact of savings has been long recognized in theory, but its effect on the aggregate savings have been considered to be over shadowed by another factor, inflation causes price of tangible assets to rise sharply and changes in net worth based on rising market value giving the illusion of well-being the magnitude of the impact of wealth on saving rate may have the reassured experiences of economic crisis have highlighted the fact low and declining saving rate have contributed to generate unsustainable current account deficits in many countries Measuring a country’s net imports or net exports is a difficult task, which involves different accounts that measure different flows of investment. These accounts are the current account and the financial account, which are then totalled to help form the balance of payments figure. The current account is used as a measure for all of the amounts involved in importing and exporting goods and services, any interest earned from foreign sources, and any money transfers between countries (Transel, 2012). The financial account is made up of the total changes in foreign and domestic property ownership. The net amounts of these two accounts are then entered into the balance of payments (Zelds, 2013).