Family dissolution and precautionary savings: an empirical analysis

Abstract

The main research question of this paper is whether or not the risk of family disruption has an impact on the consumption/saving decisions of households. Although little empirical work exists in this area, often presenting indirect evidence, the theory is divided over the effect of family risk over saving and wealth accumulation. By using data from the Italian Survey on Households Income and Wealth, we build a probabilistic model to assess the probability of marital splitting, and then we insert this probability as a distinct or interacted regressor, in a statistically consistent way, into a linear model of consumption. Furthermore, we study the differential behaviour, in terms of consumption/saving choices, of couples experiencing marital splitting over the subsequent two years. The main result of our analysis is that family disruption risk generates precautionary savings, reducing current consumption. In fact, according to our estimates, on average, the risk of divorce generates an amount of additional yearly precautionary savings of around 800 euros at constant prices of the year 2000, which represents 11% of overall household savings.

Who holds the purse strings within the household? The determinants of intra-family decision making

“…Heaton (2002) and Teachman (2002) find that couples are more likely to divorce when they do not share the same education background, particularly when it is the wife who is more educated, and that this effect is stable, or even increasing, over time. Age difference is found to be associated with divorce by Pericoli and Ventura (2012), with the probability of divorce showing a positive dependence upon the squared age difference between husband and wife. Within an empirical investigation of households' investment decisions, Bertocchi et al (2011) employ dummy variables capturing the fact that the wife is more educated, older, or earning more as proxies for marital instability.…”

Psychological determinants of financial buffer saving: the influence of financial risk tolerance and regulatory focus

“…trust in a specific situation or action; Viljanen 2005) is unresearched in relation to financial behaviours, there is hardly any economic decision that does not involve some degree of trust (Olsen 2012). Furthermore, several situational factors affect saving, ranging from recessions (Crossley, Low, and O'Dea 2013) and financial crises (O'Neill and Xiao 2012) to the risk of divorce (González and Özcan 2013;Pericoli and Ventura 2011), health deterioration (Macé 2012) and the unemployment of relatives (Tokuoka 2013). Generally speaking, income uncertainty has a positive impact on saving behaviour (Alessie and Teppa 2009;Fisher 2010).…”

Household Savings and Productive Capital Formation in Rural Vietnam: Insurance vs. Social Network

“…These income shocks can be effectively compensated by household savings shocks [14]. Another type of negative shock relating to household members such as illness, death, or divorce can affect household savings [15] [16].…”