Low rates of formal domestic savings

Context

According to the Global Financial Inclusion Database, only half of the population aged 15+ saved money in Lebanon in 2017. Moreover, even when saving occurs, it is largely insufficient with only about 31% reporting having saved enough for emergencies. This therefore puts a large proportion of the population at risk in the event of economic shocks.

Finally, despite elevated interest rates beginning in 2017 – 2018 (weighted average of 6.91% and can go up to 16% and above), gross savings have dropped 5.4% indicating that monetary policy may not always be effective in encouraging people to save.

Source: Global Financial Inclusion Database (2017); World Bank – World Development Indicators

Examples of Behavioral Biases and Bottlenecks

Present bias: Individuals may place more value on consumption today than save for future consumption. This is especially true for lower-income households who place more weight on current needs such as food and clothing.

Optimism bias: Individuals may underestimate the likelihood of experiencing a financial shocks or emergencies, and overestimate their ability to access funds when that happens.

Status-quo bias: Even when people have the best intentions to save for their future, the habit of consistent consumption may deter them from doing so.

Absence of a clear purpose to save: Individuals who do not have an achievable savings goal or target may find it difficult to save on a regular basis.

Hassle: Saving at financial institutions may be perceived as a hassle (opening a savings account, visiting the financial institutions regularly, etc.) especially in areas that have scarce ATMs or branches to deposit savings, which may deter people from saving.