The surprisingly low importance of income uncertainty for precaution

Fulford, Scott

doi:10.1016/j.euroecorev.2015.07.016

Cited by 34 publications

(18 citation statements)

References 46 publications

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“…For example, cash-ins decline when a health emergency occurs. In this case, cash-in variability would be an even better proxy of the individuals' risk exposure, because it would reflect expenditure shocks (Fulford, 2015b).…”

Section: Methodsmentioning

confidence: 99%

Why Do Poor People Co-Hold Debt and Liquid Savings?

Laureti

2017

The Journal of Development Studies

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I examine the use of flexible savings-and-loan accounts offered by SafeSave, a microfinance institution serving poor slum dwellers in Dhaka, Bangladesh. I find that 59% of the clients co-hold, meaning that they borrow at high interest rates and simultaneously hold low-yield liquid savings. Co-holders could immediately pay down, on average, 32 per cent of their debt using liquid savings and thus avoid significant interest payments. The results show that co-holders are more likely to be regular workers subject to little income uncertainty, suggesting that co-holding is not a consequence of liquidity needs. The paper discusses alternative explanations. Keywords Forthcoming in Journal of Development StudiesKey words: Liquidity, uncertainty, precautionary savings, microfinance, Bangladesh.

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Section: Methodsmentioning

confidence: 99%

Why Do Poor People Co-Hold Debt and Liquid Savings?

Laureti

2017

The Journal of Development Studies

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“…In particular, the connection between uncertainty regarding economic variables and consumption decisions has so far been empirically weaker than predicted by theory (e.g., Knotek and Khan (2011), Christelis, Georgarakos, Jappelli, and van Rooij (2016)). 3 Moreover, households' precautionary savings, especially in liquid assets, are not significantly related to income or unemployment risk (Fulford (2015b), Carroll, Dynan, and Krane (2003)), while the exposure to equity markets is lower for those with higher income risk (Guiso, Jappelli, andTerlizzese (1996), Betermier, Jansson, Parlour, andWalden (2012)). Finally, the link between uncertainty and credit market behavior has been addressed only indirectly in a handful of papers.…”

Section: Introductionmentioning

confidence: 99%

Expectations Uncertainty and Household Economic Behavior

et al. 2018

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“…We use this question to create a binary response that takes value of 1 when expenses were less than income over the last 12 months and 0 if otherwise. Earlier studies have used this measure to reflect saving behavior in empirical studies (Fisher and Montalto, ; Fulford, ).…”

Section: Methodsmentioning

confidence: 99%

A Behavioral Perspective on Saving Decisions. Empirical Evidence for Policymakers in the European Union

2020

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Evidence is mounting that individuals do not always behave as strictly 'rational' customers of the banking sector as neoclassical models of economics would assume. Instead, scholars and policymakers are increasingly arguing that behavioral economics offers a more useful and realistic means of understanding customer behavior in the real economy. Drawing on data from the first European Central Bank harmonized household survey at the European level and Eurostat, this paper develops a multilevel model to investigate how individuals actually save. We find evidence that loss aversion bias exists in saving behavior as regards an individual's current level of income, and that evidence of this effect is also supported at the country level. We also find strong evidence that socio-demographic factors and cross-country differences influence individuals' saving behavior. We argue that behavioral approaches canand shouldbe used to understand saving behavior of individuals, and that this insight should be used towards the ongoing quest to improve future banking practice and financial reform, particularly in the aftermath of the 2008 financial crisis. Policy Implications• Individuals' saving behavior responds more to declines than to increases in customers' current level of income. Therefore, policymakers should facilitate a framework in which losses become less salient, by prioritizing more the long-term benefits.• Findings show that loss aversion is smaller for those EU countries with a lower level of GNI per capita, such as Latvia, Hungary, Greece, Estonia, Portugal, Slovakia, and Cyprus. Incorporating evidence derived from EU countries into policy-making can help address the weaknesses associated with neoclassical approaches.• Individuals that are more educated, married and homeowners tend to save more than their counterparts. On the contrary, women, unemployed and individuals living in a large household tend to save less. Behavioral tools are especially recommended for individuals who are thought to be potentially 'vulnerable' customers.• EU countries such as Cyprus, Greece and Latvia exhibiting a smaller loss aversion are associated with negative saving rates.Financial policies which promote disclosure methods, such as targeting annual summaries, may be beneficial for customers in different EU countries to take their saving decisions.

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The surprisingly low importance of income uncertainty for precaution

Cited by 34 publications

References 46 publications

Why Do Poor People Co-Hold Debt and Liquid Savings?

Why Do Poor People Co-Hold Debt and Liquid Savings?

Expectations Uncertainty and Household Economic Behavior

A Behavioral Perspective on Saving Decisions. Empirical Evidence for Policymakers in the European Union

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