Emergency Fund Levels: Is Household Behavior Rational?

FINANCIAL COUNSELING AND PLANNING, 1997

10 Pages Posted: 8 Sep 1997 Last revised: 7 Mar 2019

See all articles by Y. Regina Chang

Y. Regina Chang

University of Missouri at Columbia - College of Human Environmental Sciences - Department of Consumer & Family Economics

Sherman D. Hanna

Ohio State University (OSU)

Jessie X. Fan

University of Utah

Date Written: 1 1, 1997

Abstract

Empirical studies have found that most households do not have recommended levels of emergency funds. A three-period model of optimal consumption is presented. The theoretical model suggests that many consumers without recommended levels of liquid assets may be acting rationally. The model is tested empirically with the 1983-1986 panels of the Surveys of Consumer Finances. Empirical findings support the model in that households who could have expected to have decreases in future real income were significantly more likely to hold adequate emergency fund reserves than those who could have expected to have no decline in real income.

JEL Classification: D91, E21

Suggested Citation

Chang, Y. Regina and Hanna, Sherman D. and Fan, Jessie X, Emergency Fund Levels: Is Household Behavior Rational? (1 1, 1997). FINANCIAL COUNSELING AND PLANNING, 1997. Available at SSRN: https://ssrn.com/abstract=10767

Y. Regina Chang (Contact Author)

University of Missouri at Columbia - College of Human Environmental Sciences - Department of Consumer & Family Economics ( email )

Columbia, MO 65211
United States
314-882-9343 (Phone)
314-884-4807 (Fax)

Sherman D. Hanna

Ohio State University (OSU) ( email )

1787 Neil Avenue
Campbell 265D
Columbus, OH 43210
United States
614-292-4584 (Phone)

Jessie X Fan

University of Utah ( email )

225 S 1400 E AEB 228
Salt Lake City, UT 84112-0080
United States

HOME PAGE: http://www.fcs.utah.edu?~fan

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