Analysis of the Precautionary Saving Motive Based on a Subjective Measure : (SAVE 2005-2007)

The importance of the precautionary saving motive for households’ saving behaviour is unquestioned in the literature of the last two decades. However, the magnitude of precautionary savings and its influencing factors could not be satisfactorily determined. A subjective measure of the desired amount of precautionary savings in the German SAVE study 2005-2007 allows for the evaluation of these questions on a new basis without relying on a specific definition of wealth. This study supports the view of a low or at most moderate contribution of precautionary savings to wealth accumulation ranging from 6% for total net wealth to 26% for financial wealth. Carroll’s buffer-stock model (1992, 1997) is introduced since it establishes the theoretical foundation of this study. In a multivariate data analysis, the panel structure and the wide range of theoretically relevant variables available in the SAVE datasets allows investigating the factors which influence the subjective measure of the desired amount of precautionary savings. Education, current income, variables which reflect a precautionary attitude, bequest and old-age provision motives have strong and significant effects in the expected way. The variables for individual income risk have the expected sign over all specifications. However, they remain insignificant at the usual significance levels, which can be due to the construction of these variables or the German social insurance and welfare system.