Determinants of Private Savings in Malawi: A Micro-Econometric Analysis

Abstract

Private savings constitute a critical source of domestic finance for investment and economic growth, particularly in low-income economies where access to external capital is limited. Despite its importance, household-level saving behavior in Malawi remains insufficiently understood, especially regarding the distinct determinants of formal and informal savings. This study examines the socio-economic and demographic drivers of private savings using nationally representative data from the 2017 Malawi Financial Literacy and Consumer Protection Survey. A Probit regression framework is employed to distinguish between formal savings held in financial institutions and informal savings accumulated through community-based mechanisms. The results reveal a pronounced reliance on informal savings, with 34% of households participating in informal arrangements compared to only 9% in formal financial institutions. Employment status, educational attainment, and receipt of remittances emerge as the most robust determinants of saving behavior. Employment significantly increases the probability of saving through both channels, while secondary or higher education strongly promotes formal savings participation. Remittances positively affect both saving mechanisms. Income quintiles and age show limited influence once other factors are controlled for, although gender differences are evident in informal savings participation. The findings underscore the segmented nature of Malawi’s savings landscape and highlight the importance of employment generation, education, financial literacy, and digital financial integration in strengthening domestic resource mobilization.