Do Immigrants Save Less than Natives? Immigrant and Native Saving Behaviour in Australia

Abstract

The observed wealth differential in favour of native households seems to contradict the analytical presumption of a saving differential in favour of immigrant households. This article seeks to explain the observed differences in wealth through an examination of the respective saving behaviour of immigrants and natives. Quantile regression and semiparametric decomposition methods are used to identify the saving differential and to isolate the factors that contribute to it. The basic finding is that household income is the key to the differential saving pattern. Moreover, decomposition analysis suggests that immigrants have a tendency to save more than natives when compared with Australian‐born households with similar characteristics. We also find evidence of heterogeneity in immigrant saving behaviour depending on household types and countries of origin.

Household saving in Australia

“…Households where the household head was not born in an English-speaking country tend to save more than households where the household head was born in an English-speaking country. This is consistent with the results of Islam et al (2013), who find that migrants have a higher propensity to save compared with Australian-born households with similar characteristics. While this effect could reflect the differing priorities of newly arrived migrants compared with existing residents, it could also be evidence of precautionary saving if being born in a non-English-speaking country is associated with less certainty regarding employment.…”

“…Using the Household Expenditure Survey, Islam, Parasnis and Fausten (2013) examine the saving behaviour of migrants in Australia. They find that migrant households tend to save more than otherwise-similar native-born households, but that they also tend to have lower incomes, and that the latter result dominates, resulting in less saving overall.…”

“…In Section 2 we describe the household-level datasets we use, and examine how they compare with aggregate data available in the Australian national accounts. Section 3 presents the crosssectional results from a model of the median household's saving behaviour that is similar to those employed in Dynan et al (2004), Chamon and Prasad (2010) and Islam et al (2013), while Section 4 presents the time series results from the median regression model as well as a decomposition of the change in the mean saving ratio into parameter and characteristic effects. Modelling median saving allows us to assess determinants of the saving behaviour of a 'typical' household, while modelling mean saving allows us to quantify the size of various influences on the aggregate saving ratio.…”

Can immigrants insure against shocks as well as the native-born?

“…Amuedo-Dorantes and Pozo (2002) suggest the reason for increased perceived risk by immigrants could be due to labour market participation, labour market progress, and health care coverage. Islam, Parasnis, and Fausten (2013) find systematic differences between immigrants and native-born in saving behaviour. They find that the immigrant population tends to save more in Australia, though it is not clear if such behaviour is in response to uncertainty about the job market or for other behavioural reasons such as preferences for saving due to culture, norm and habits as in Carroll et al (1994).…”

Saving Preferences After Retirement

“…Finally, as immigrants (both from western and non-western countries) are more likely to experience income uncertainty and be subject to qualifying periods to access social security (Islam et al, 2013), we expect that they generally want more security (m = 8).…”