Knowing When to Splurge: Precautionary Saving and Chinese-Canadians

Posted: 26 Jul 2019

See all articles by Mark S. Manger

Mark S. Manger

University of Toronto - Munk School of Global Affairs and Public Policy

J. Scott Matthews

Memorial University of Newfoundland (MNU)

Date Written: July 24, 2019

Abstract

Why do household saving rates differ so much across countries? This micro-level question has global implications: countries that systematically “oversave” export capital by running current account surpluses. In the recipient countries, interest rates are thus too low and financial stability is put at risk. Existing theories argue that saving is precautionary, but tests are limited to cross-country comparisons and are not always supportive. We report the findings of an original survey experiment. Using a simulated financial saving task implemented online, we compare the saving preferences of a large and diverse sample of Chinese-Canadians with other Canadians. This comparison is instructive given that Chinese-Canadians migrated from, or descend from those who migrated from, a high-saving environment to a low-savings, high-debt environment. We also compare behavior in the presence and absence of a simulated “welfare state”, which we represent in the form of mandatory insurance. Our respondents exhibit behavior in the saving task that corresponds to standard economic assumptions about lifecycle savings and risk aversion. We find strong evidence that precautionary saving is reduced when a mandatory insurance is present, but no support that Chinese cultural influences – represented in linguistic or ethnic terms – have any effect on saving behavior.

JEL Classification: D14, D15, G14

Suggested Citation

Manger, Mark S. and Matthews, J. Scott, Knowing When to Splurge: Precautionary Saving and Chinese-Canadians (July 24, 2019). Available at SSRN: https://ssrn.com/abstract=3426162

Mark S. Manger (Contact Author)

University of Toronto - Munk School of Global Affairs and Public Policy ( email )

Toronto, Ontario
Canada

J. Scott Matthews

Memorial University of Newfoundland (MNU) ( email )

Faculty of Education
St. John's, Newfoundland A1B 3X5 A1C 5V3
Canada

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