October 11, 2010

The Precautionary Saving Motive and Wealth Accumulation

We quantify the relative importance of the precautionary saving motive in determining wealth accumulation.

Puzzling results have appeared on the relative importance of the precautionary motive when this is derived either using a self reported measure of uncertainty about future income rather than observed life-cycle income variation.

In this study we show that if one takes into account explicitly the uncertainty of the second income earner results converge using both methods. Precautionary savings account for about 30% of wealth accumulation. However we also claim that obtaining converging results does not necessarily answer the question on the empirical relevance of precautionary savings, as the amounts being saved largely differ among studies due to the country specific incentives to save and to the measure of wealth accumulation.


Mauro Mastrogiacomo
Rob Alessie