UNDERSTANDING THE HOUSEHOLD SAVING RATE: A DEMOGRAPHIC ANALYSIS OF THE INTERTEMPORAL CONSUMPTION DECISION

Abstract

This paper attempts to uncover the intricacies that lie behind the household saving rate in the United States. Much of the past research has focused either on wealth effects or the life-cycle model of savings, but this paper dives much deeper, combining macroeconomic and behavioral explanations for how households make the decision to save. Using data from Federal Reserve Economic Data, the Global Financial Database and the Survey of Consumer Finances, this paper studies the effects of the financial and credit markets on the household saving rate for households aged twenty-five to sixty-five over the time period of 1989 to 2010. This paper has found significant evidence of the precautionary saving motive as the main incentive to save. Other behavioral motives such as selfcontrol and mental-accounting also play pivotal roles in the household saving decision.