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The Precautionary Savings Motive and Household Savings

33 Pages Posted: 17 Apr 2012  

Mauro Mastrogiacomo

De Nederlansdche Bank (DNB); VU University Amsterdam - Faculty of Economics and Business Administration

Rob J. M. Alessie

University of Groningen; Netspar; Tilburg University - Center for Economic Research (CentER)

Date Written: February 24, 2012

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 measure of uncertainty about next year income. However, other studies use an ‘objective’ method to proxy for income uncertainty by exploiting life-cycle income variation. These studies find a large impact 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 dataset and obtain similar results: the subjective and objective methods suggest that precautionary savings account for approximately 30% of savings. Obtaining converging results does not necessarily determine the empirical relevance of precautionary savings if studies from different countries are compared.

Keywords: precautionary savings, income uncertainty

JEL Classification: D12, D91, E21

Suggested Citation

Mastrogiacomo, Mauro and Alessie, Rob J. M., The Precautionary Savings Motive and Household Savings (February 24, 2012). Netspar Discussion Paper No. 02/2012-009. Available at SSRN: https://ssrn.com/abstract=2041160 or http://dx.doi.org/10.2139/ssrn.2041160

Mauro Mastrogiacomo (Contact Author)

De Nederlansdche Bank (DNB) ( email )

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB
Netherlands

VU University Amsterdam - Faculty of Economics and Business Administration ( email )

De Boelelaan 1105
Amsterdam, 1081HV
Netherlands
+31(0)20 444 6037 (Phone)
+31(0)20 444 6004 (Fax)

Rob J. M. Alessie

University of Groningen ( email )

P.O. box 800
9700 AV Groningen
Netherlands
050-3637240 (Phone)

HOME PAGE: http://members.chello.nl/~r.j.m.alessie

Netspar

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

HOME PAGE: http://www.netspar.nl

Tilburg University - Center for Economic Research (CentER)

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

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