Tuesday, October 5, 2010

What makes people save?

The saving behavior of people is heterogeneous, and what drives it is important for policy. In particular, there is a strong belief that people do not save enough, either because they know the state will bail them out in old age or because their intertemporal preferences are not aligned with the social planner. In any case, what drives people to particular saving behaviors?

Henrik Cronqvist and Stephan Siegel use data from identical twins in Sweden and conclude a little bit over everything is contributing. Of course, results will depend on whether people have faced circumstances that make saving difficult. 35% of the differences in saving propensity can be explained by genes, more so for men, educated and wealthier people. Parental influence is stronger when other siblings are present, which the authors interpret as a situation with less competition for parental resources (why? they are also competing for the parents' attention). But all this means there is still 65% of the variation that can be educated. Which is a lot.

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