Abstract
This study probes the financial and monetary dynamics influencing the investment decisions of small, low-income households, specifically those identified as non-Ricardian households (NRHs) in South Africa, who profoundly depend on government aid. Drawing from data collected through the National Income Dynamics Study (NIDS) across waves 1 to 5, the study meticulously examines this longitudinal survey to uncover the socio-economic characteristics of NRHs. Using various estimation system, including pooled ordinary least squares (OLS), as well as stable and random effects models, the analysis unveils an indirect correlation between domestic grants and saving levels, indicating that social aid might discourage investment among these financially vulnerable households. The results reveals that socio-economic factors can explain almost half (48%) of the observed investment behaviour in those households. Despite the recurring challenges of poverty, the findings underscore their significance for policymakers. Based on these insights, the study advocate for governmental initiatives aimed at fostering entrepreneurship within low-income households, particularly among historically marginalized groups, as a strategy to reduce inequality and promote prosperity across generations. Furthermore, the study proposes policies that empower NRHs to pursue productive activities and access sustainable solutions, thus reducing their dependence on exploitative lending practices and ultimately breaking the cycle of poverty.