Precautionary Saving Motives: An Assessment from UK Time Series of Cross- Sections

Abstract

This paper gauges the strength of precautionary saving motives by estimating the coefficient of prudence from the UK Family Expenditure Survey data set (a time series of cross-sections). The instrumental variables estimates reveal that greater uncertainty systematically leads to larger current saving. Most of these impacts are large enough to be statistically consistent with widely accepted beliefs about attitudes towards risk, so that precautionary saving behaviour cannot be refuted. Moreover, the households which are less likely to face liquidity constraints or to share risks are more sensitive to uncertainty. Finally, the households for which the head works in the manufacturing industry are more inclined to self-insure against uncertainty.