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Disentangling the Importance of the Precautionary Saving Mode

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  • Arthur Kennickell
  • Annamaria Lusardi
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    Abstract

    We assess 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 bound 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. Even though this motive does not give rise to large amounts of wealth 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.

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    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10888.

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    Date of creation: Nov 2004
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    Handle: RePEc:nbr:nberwo:10888

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