Recession: Why people keep money at home

Uwaleke, the Head, Banking and Finance , Nassarawa State University, told the News Agency of Nigeria  (NAN) that in a cash-based economy like ours little amount of
money could be kept at home.

“People keep money at home to meet emergencies.

“Also, cash is the most liquid asset and so easy access to cash and convenience could be a motivation for keeping some cash at home rather than having
it in electronic cards.

“Impulse buying behaviour displayed in traffic gridlocks as well as roadside purchase of ‘penny goods’ like groundnuts, sweets among others are made possible with ready cash in hand.

“ Interestingly, there are those who keep some money at home to have something to placate armed robbers who would maim or even kill if they met a man at home and found nothing on him.

“Again, a man with questionable means of livelihood would rather shun the banks and keep proceeds of crime in his home,’’he said.

Uwaleke further explained that some people had apathy for putting money in the banks.

He said this was common if the savings rate was too low to compensate for the time and inconvenience associated with opening and operating a savings account.

Finally, some persons may have no better alternative than to keep money at home if they do not have access to banking facilities.

He, however, said the practice or natural disposition of people keeping money at home could be discouraged by opening more bank branches and improving access and efficiency in banking transactions.

He said it could also be discouraged by embarking on public enlightenment on the dangers of home savings and inculcating money and finance studies in basic education.

“ Improvement in power, telecom and other support infrastructure for electronic payment systems and plugging public sector leakages and avenues for corruption is another measure, ‘’he
said.

On the effects of keeping money outside the banking system, he said it makes commercial banks that perform financial intermediation functions handicapped to perform this crucial function.

“ Also, the capacity of banks to create money and stimulate the economy is constrained as size of loanable funds is severely affected.

“Monetary policy is made more difficult for the CBN when it has little or no control over money circulating outside the banking system.

“There is also the risk of attack by robbers and danger to one’s life when domestic staffers who notice this habit of their boss become informants and collude to steal
from their employer.

“Of course, when money is kept at home instead of the bank, it contributes to economic recession,’’Uwaleke said.

He said that in order to restart a general downturn in the business cycle, aggregate demand had to rise and this would happen only when there was circular flow of income.

Uwaleke said the cash squeeze in the country was largely as a result of the collapse in oil revenue because “we do not have a diversified export base’’.

He, however, said the situation could be ameliorated if much of the proceeds of corruption alleged to be stashed away in
private vaults found their way into the banking system.