The savings behaviour of informal settlement households with social grant recipients: A case study of Freedom Park, Soweto

May 2018
By Mmamoletji Oniccah Thosago

1 Introduction

The South African poverty rate is one of the highest in the world, even amongst developing countries (Leibbrandt et al., 2010). In 1994, the government introduced socio-economic policies aiming to eradicate poverty, including social grants for the poor (ODI, 2006). Initially, the newly democratic country offered social grants to pensioners, people with disabilities, war veterans and foster children (Patel et al., 2012). But because of the intractable high level of poverty, especially among the black population, a child support grant was introduced in 1998 (Lund, 2011; Williams, 2007). It seems that the expansion of social grants to include the child support grant has hardly had any effect on reducing poverty, however, since the country still has one of the highest poverty rates globally (Leibbrandt et al., 2010). Armstrong et al. (2008), Devereux (2002) and the South African Minister of Finance, Mr Pravin Gordon, have argued that household savings will mitigate household poverty (MoneyWeb, 2013). In essence, their position is that there is merit in household savings as a means of eradicating poverty. But critics of this approach, such as Dupas and Robinsona (2013), emphasise that poor households, including those that receive social grants, are simply too poor to save, as they tend to consume their entire income to meet basic needs. Clearly, there are two opposing positions: one that argues that the poor can save, and the other that maintains that they cannot. 

Prina (2015) and Karlan et al. (2014) argue that poor households can and do save, using several informal saving instruments (Prina, 2015), and, like rich households, also use formal saving instruments found within financial institutions (Bachas et al., 2016). Bachas et al. (2016) and Campbell et al. (2012) observe that formal financial institutions have regulations, terms and conditions that hinder the poor from using these saving instruments. Given these opposing views on the saving instruments used by poor households, the question needs to be resolved.
To answer it, this paper identifies poor households as those that are recipients of social grants. In South Africa, poor households are mostly found in rural areas (Shapurjee and Charlton, 2013). The urban poor often reside in townships and informal settlements.1 According to Basardien et al. (2014), informal settlement households are severely poor compared to formal township households. This paper focuses on Freedom Park, an area in Soweto that has informal settlements. 

The remainder of the paper is structured as follows: Section 2 discusses the literature on saving instruments, emphasising its availability and accessibility to poor households; Section 3 explains the methodological approach adopted to answer the research question; Section 4 presents and discusses the findings; and, lastly, Section 5 draws the conclusion. Read more

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