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The precautionary savings motive and household savings

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  • Mauro Mastrogiacomo
  • Rob Alessie

Abstract

We quantified the relative importance of the precautionary motive in determining savings. Existing empirical evidence suggests that the impact of precautionary savings is small if one uses a subjective (based on self-reported expectations) measure of uncertainty about next year income. However, other studies use more objective (based on income data) methods to proxy for income uncertainty by exploiting life-cycle income variation. These studies find a large effect of precautionary savings. These contradictory results may be either suggestive of methodological shortcomings or the result of institutional differences between countries. We refined the subjective method by taking into account the uncertainty as perceived by the second income earner. We then apply the 'objective' and 'subjective' method to the same data set and obtain similar results: the subjective and objective methods suggest that precautionary savings account for approximately 30% of savings. Copyright 2014 Oxford University Press 2013 All rights reserved, Oxford University Press.

Suggested Citation

  • Mauro Mastrogiacomo & Rob Alessie, 2014. "The precautionary savings motive and household savings," Oxford Economic Papers, Oxford University Press, vol. 66(1), pages 164-187, January.
    • Handle: RePEc:oup:oxecpp:v:66:y:2014:i:1:p:164-187
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    File URL: http://hdl.handle.net/10.1093/oep/gpt028
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    Cited by:

    1. Francesco Scervini & Serena Trucchi, 2022. "Intergenerational Precautionary Savings in Europe," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 84(2), pages 427-450, April.
    2. Aneta Maria Kłopocka, 2017. "Does Consumer Confidence Forecast Household Saving and Borrowing Behavior? Evidence for Poland," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 133(2), pages 693-717, September.
    3. Lenka Mynaříková & Vít Pošta, 2023. "The Effect of Consumer Confidence and Subjective Well-being on Consumers’ Spending Behavior," Journal of Happiness Studies, Springer, vol. 24(2), pages 429-453, February.
    4. Aneta M. Klopocka & Rumiana Gorska, 2021. "Forecasting Household Saving Rate with Consumer Confidence Indicator and its Components: Panel Data Analysis of 14 European Countries," European Research Studies Journal, European Research Studies Journal, vol. 0(3), pages 874-898.
    5. Mariacristina Rossi & Dario Sansone, 2018. "Precautionary savings and the self-employed," Small Business Economics, Springer, vol. 51(1), pages 105-127, June.
    6. Maryna Brychko & Tetyana Vasilyeva & Zuzana Rowland & Serhiy Lyeonov, 2021. "Does the real estate market behavior predict the trust crisis in the financial sector? The case of the ECB and the Euro," Equilibrium. Quarterly Journal of Economics and Economic Policy, Institute of Economic Research, vol. 16(4), pages 711-740, December.
    7. Orland, Andreas & Rostam-Afschar, Davud, 2021. "Flexible work arrangements and precautionary behavior: Theory and experimental evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 191(C), pages 442-481.
    8. Been, Jim & van Ewijk, Casper & Knoef, Marike & Mehlkopf, Roel & Muns, Sander, 2024. "Households’ heterogeneous welfare effects of using home equity for life cycle consumption," The Journal of the Economics of Ageing, Elsevier, vol. 27(C).
    9. Barbara Broadway & John P. Haisken-DeNew, 2019. "Keep calm and consume? Subjective uncertainty and precautionary savings," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 43(3), pages 481-505, July.
    10. Laureti, Carolina & Szafarz, Ariane, 2023. "Banking regulation and costless commitment contracts for time-inconsistent agents," Economic Modelling, Elsevier, vol. 129(C).
    11. Edyta Marcinkiewicz, 2018. "Does the retirement saving motive foster higher savings? The evidence from the Polish household survey," Business and Economic Horizons (BEH), Prague Development Center, vol. 14(1), pages 85-96, January.
    12. Aneta Maria Kłopocka & Tomasz Kopczyński & Grażyna Lenicka-Bajer, 2014. "Financial Situation And Attitudes Towards Saving In Polish Society:Evidence From Micro Data," Annals - Economy Series, Constantin Brancusi University, Faculty of Economics, vol. 0, pages 476-486, May.
    13. Lugilde, Alba, 2018. "Does income uncertainty affect Spanish household consumption?," MPRA Paper 87110, University Library of Munich, Germany.
    14. Alba Lugilde & Roberto Bande & Dolores Riveiro, 2018. "Precautionary saving in Spain during the great recession: evidence from a panel of uncertainty indicators," Review of Economics of the Household, Springer, vol. 16(4), pages 1151-1179, December.
    15. Marina Matosec & Zdenka Obuljen Zoricic, 2019. "Identifying the Interdependence between Consumer Confidence and Macroeconomic Developments in Croatia," Interdisciplinary Description of Complex Systems - scientific journal, Croatian Interdisciplinary Society Provider Homepage: http://indecs.eu, vol. 17(2-B), pages 345-354.
    16. Michelle Burke & Fauzan Kemal Musthofa & Sylvia Andriyani Kusumandari, "undated". "Dampak Sosial-Ekonomi Pandemi COVID-19 di Wilayah Pascabencana: Asesmen Cepat di Nusa Tenggara Barat dan Sulawesi Tengah," Working Papers 3553, Communications Section.
    17. Michelle Andrina & Fauzan Kemal Musthofa & Sylvia Andriyani Kusumandari, "undated". "The Socio-Economic Impact of The COVID-19 Pandemic in Post-Disaster Areas: Rapid Assessment in West Nusa Tenggara and Central Sulawesi," Working Papers 2589, Communications Section.

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