Context

Regular saving is important to build emergency reserves to cover financial crises, to meet financial goals and for security in retirement. To improve the personal savings rate it is important to understand how motivations influence saving habits (behaviour).

This review takes Katona’s psychological classification of household saving habits (Katona, 1975) as the basis for a new analysis of existing primary market research data, the 2007 Survey of Consumer Finances. The classification groups households into regular (discretionary) savers, irregular (residual) savers, or non-savers. The authors conducted a literature review to give context to their analysis; they contend that previous studies have focused mostly on the relationship between savings motives and the value of savings, whereas their analysis will seek links between saving motives and saving habits.

The authors set out three hypotheses:

“ . Holding all other demographic and other saving-related factors constant, households with a specific saving motive are more likely to save regularly than to not save. . Holding all other demographic and other saving-related factors constant, households with a specific saving motive are more likely to save irregularly than to not save. . Holding all other demographic and other saving-related factors constant, households with a specific saving motive are more likely to save regularly than irregularly” (Anong and Fisher, 2012).

The study

The data analysis is based on the 3,822 non-retired households within the nationally representative sample of 4,422 households that took part in the 2007 Survey of Consumer Finances. This is a triennial survey published by the US Federal Reserve System. The authors grouped respondents by household saving habit and then conducted regression analysis to see which variables correlated with which saving habit group.

Key findings

• The authors found that they were able to group the households effectively according to the three savings habits types: regular, irregular and non-savers. They also found that there were differences between these types, in terms of income, risk tolerance and savings horizon.
• Precautionary (emergency) and retirement saving motives, as well as having a medium or long saving horizon, increased the likelihood of being either a regular or an irregular saver, as compared to being a non-saver. But only the retirement saving motive and a long-term saving horizon distinguished regular savers from irregular savers.
• Financial advisors, educators and policy makers should stress the importance of identifying appropriate goals with realistic time horizons, preferably for long horizons with regular saving of small amounts.

Points to consider

• Understanding why people save and this influences saving behavior is very relevant.
• The study is based in the US. The findings are likely to apply to other Western economies.
• The research may be of interest to anyone who wishes to understand more about why households save..
• This is a robust analysis based on a large sample from a nationally representative dataset.