Saving strategies of Jakarta’s poor

The Asian Trends Monitoring team conducted a survey among Jakarta’s slum dwellers between February 24 and March 2nd 2012. We collected a total of 348 responses from seven different neighbourhoods in Jakarta with the help of 15 research assistants from the University of Indonesia. The survey had a “perception of difficulties” section comprising ten categories, each to be rated on a 5-point scale (from “easy” to “impossible/unable to do”). These ten categories were then compiled into a “life difficulty” index through direct summation.

One of the items required respondents to rate their difficulty of “Saving Money”. More than a third of respondents answered that they were unable to save, while another third said that it was very difficult for them (see below). Together with finding work opportunities and having enough living space, saving money was the most difficult aspect of the respondents in our sample.

The ability to save money is highly correlated to other important aspects of surviving in the city. We found a significant difference in perceived life difficulty between those who save and those who don’t save regularly. The first group had an average score of 21.6 on the life difficulty index (10 Points indicates Ease, while 50 points indicates inability in all 10 items) compared to 31.3 points for the respondents unable to make weekly savings (see t-test below).

We were also interested to find out where the urban poor typically keep their money. Surprisingly, 63.5 % keep their savings at home, only 22 % keep it in a bank account, and a small minority of 5 % use MFIs, savings groups and cooperatives to deposit their money. The remainder converts cash into other commodities or entrusts it with relatives.

Among those without bank account, 89 % indicated that they are not able to save regularly. However, even those who do save only manage to put aside an average of US$ 5.80 per week. At that rate you can imagine how long it will take them until they would have enough money saved to make a significant investment into scaling their business (as most them are self-employed micro-entrepreneurs).

Any small emergency such as unexpected medical expenditures, foregone income due to sickness or unemployment would wipe out all of their savings and probably force them to borrow from moneylenders forcing them further into a cycle of poverty.

Why aren’t there more innovative tools for Jakarta’s slum dwellers to help them save?
Is it the unattractive urban environment which makes it difficult to track people and build a reliable client base for MFIs?
More on the lucrative business of money lenders in Asia’s slums in a later blog post…