Towards a Mental Accounting Architecture of Household Savings (MAAHS): Conceptualizing Savings Behaviour among Low-Income Urban Households

Household savings among low-income urban populations remain persistently low despite substantial expansion in microfinance, digital banking and financial inclusion initiatives across the Global South. Conventional income-based explanations fail to explain why households with comparable financial resources often exhibit markedly different saving outcomes. This paper argues that these differences arise from a distinct cognitive architecture governing financial decision-making rather than from economic constraints alone. Building on Thaler's Mental Accounting Theory and insights from behavioural economics, the study develops the Mental Accounting Architecture of Household Savings (MAAHS), an integrative conceptual framework that explains household saving behaviour through five interacting mechanisms: categorical budgeting rigidity, psychological compartmentalisation of savings, present-biased temporal discounting, loss-averse consumption prioritisation, and social-normative expenditure pressures. The framework illustrates how these mechanisms interact across individual, household and institutional levels to shape saving decisions. It further proposes twelve testable propositions and outlines a structural equation modeling framework for future empirical validation. By integrating fragmented behavioural evidence into a unified and testable model, the paper provides a stronger theoretical foundation for designing savings products, financial literacy interventions and consumer protection policies aimed at improving household savings among low-income urban populations.

mental accounting, household savings behaviour, behavioural economics, financial inclusion, MAAHS framework, developing economies

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