Factors affecting precautionary savings of self‐employed farm households

Abstract

Purpose -The purpose of this paper is to empirically investigate the effects of farm income variability, farm size, and other socio-demographic characteristics on the precautionary saving behavior of farm households and to estimate the influences of the identified factors on the amount of savings by self-employed farm households. Design/methodology/approach -Using 2003 Agricultural Resource Management Survey (ARMS) data and a Double-Hurdle procedure, the likelihood and the amount of savings by farm households are estimated. Findings -An important empirical finding of this study is that variability in income plays an important role in explaining precautionary savings of US farm households. Findings suggest that farm households facing higher income risk save more and accumulate more wealth. It is indicated that several farm, operator, household, and demographic attributes contribute to the precautionary savings of farm households. In particular, results show that educational attainment by operator and spouses have positive impact on the decision to save. In addition, results from this study show that farms that specialize in cash grain are likely to have precautionary savings. Practical implications -Farm households today are virtually indistinguishable from non-farm households in their levels of income and diversity of employment. As a result, government policies that influence general economic conditions have much more profound impacts on farm families. Federal support of farm income warrants continued scrutiny. This paper shows that greater income uncertainty increases savings and wealth of farm households. Therefore, farm policies that reduce income variability or uncertainty will have an impact on precautionary savings and wealth of farm households. Originality/value -Several studies have investigated savings of households; however, these studies are limited to entire US population, older Americans, or non-self-employed individuals in the USA. Little is known about the savings behavior of self-employed US farm households owing to a lack of household survey data and because of the complex relationship between the farm household and farm business in terms of resource allocation (both capital and labor).

Adoption of Contract Farming and Precautionary Savings to Manage the Catastrophic Risk of Maize Farming: Evidence from Bangladesh

“…They revealed that age has a negative effect on a farmer's adoption of precautionary savings. Mishra [65] conveyed that adoption of precautionary savings had a positive relationship with age. Farmers with more education are more expected to avoid adoption of precautionary savings for managing farming risks.…”

“…The outcome of the education factor is in agreement with Kouame [37] and Raza Ullah et al [23], who established that literacy has a negative relationship with precautionary savings. However, Mishra [65] perceived a positive relationship between the education of the heads of the household and precautionary savings.…”

Life-Cycle and Its Impact on the Disparity in Economic Well-Being among U.S. Sole Proprietor Households: Evidence from Two National Surveys

“…Several studies have investigated the size and the distribution of wealth among farm families (e.g., Wunderlich 1984;Skees, Reed, and Pederson 1985;Ahearn and El-Osta 1991;El-Osta and Morehart 2002;Mishra et al, 2002;Mishra and Chang 2009). Notwithstanding the contribution of these studies, there seems to be a scarcity of literature regarding the impact of the life cycle on the disparity in farm household wealth.…”

What may determine off-farm income? A review

“…A higher income risk results in an increase in the level of these financial resources. Mishra and Chang (2009) stressed that the stabilisation-oriented policies consequently reduced the income variability, and, as a result, reduced the level of the precautionary savings. Blanck and Bahrs (2009) analysed if the income deposits as an income risk management tool may be doi: 10.17221/123/2016-AGRICECON implemented to the German agriculture sector.…”

“…They underlined a significant "off-farm labour state dependence", with interrelations between the past and present farm behaviour. Mishra and Chang (2009) analysed what determined the precautionary savings of the U.S. farm households. A higher income risk results in an increase in the level of these financial resources.…”