Disentangling the Importance of the Precautionary Saving Motive

Posted: 23 Jun 2006

See all articles by Arthur B. Kennickell

Arthur B. Kennickell

Federal Reserve Board - Department of Research & Statistics

Annamaria Lusardi

George Washington University - Department of Accountancy; National Bureau of Economic Research (NBER)

Multiple version iconThere are 3 versions of this paper

Date Written: December 2005

Abstract

We evaluate the importance of the precautionary saving motive by relying on a direct question about precautionary wealth from the 1995 and 1998 waves of the Survey of Consumer Finances. In this survey, a new question has been designed to elicit the amount of desired precautionary wealth. This allows us to assess the amount of precautionary accumulation and to overcome many of the problems of previous works on this topic. We find that a precautionary saving motive exists and affects virtually every type of household. However, precautionary savings account for only 8 percent of total wealth holdings. Even though this motive does not give rise to large amounts of wealth, particularly for young and middle-age households, it is particularly important for two groups: older households and business owners. Overall, we provide strong evidence that we need to take the precautionary saving motive into account when modeling saving behavior.

Keywords: Risk, Buffer-stock Models of Saving, Old Cohorts Wealth, Business Owners Wealth

JEL Classification: D91, E21, C21

Suggested Citation

Kennickell, Arthur B. and Lusardi, Annamaria, Disentangling the Importance of the Precautionary Saving Motive (December 2005). CFS Working Paper No. 2006/15. Available at SSRN: https://ssrn.com/abstract=910807

Arthur B. Kennickell

Federal Reserve Board - Department of Research & Statistics ( email )

20th & C. St., N.W.
Washington, DC 20551
United States
202-452-2247 (Phone)
202-452-5295 (Fax)

Annamaria Lusardi (Contact Author)

George Washington University - Department of Accountancy ( email )

George Washington University School of Business
Washington, DC 20052
United States

HOME PAGE: http://business.gwu.edu/profiles/annamaria-lusardi/

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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