Économie et Statistique n° 417-418 - Household Assets: Recent Developments
Are the French Cautious? Assets and Labour-Market Risk
“To build up a reserve against unforeseen contingencies” topped Keynes’s list (1936) of the “eight main motives or objects of a subjective character which lead individuals to refrain from spending out of their incomes”. This precautionary saving—notably against the uncertainties of future resources—was modelled thirty years later by Leland (1968), Sandmo (1970), and Drèze and Modigliani (1972), then revisited by Kimball (1993). It has always been one of the prime reasons offered to explain the accumulation of wealth, along with preparation for retirement and intergenerational transfer. The quantification of savers’ caution with respect to future income risk has been discussed in an empirical literature that, despite its abundance, is far from having achieved consensus. To sum up, one measure is given by simulation methods that calibrate theoretical life-cycle models on actual income data to explain household saving. They put the share of precautionary assets in total assets at roughly 50%. Econometric studies, instead, suggest a range of 1-20%. The latter estimates seem more reasonable, since—to put it differently—a precautionary-saving share above 50% would mean that one-half of asset inequality is solely due to savers’ prudence. Our study seeks to quantify the precautionary motive of French savers facing future income risks from the data of INSEE’s 2004 Household Assets Survey. The measurements of these uncertainties are subjective, being directly projected by a household member for the five years ahead. They concern either the probability of losing one’s job, or possible income fluctuations. Overall, the precautionary-saving motive seems fairly limited among the French. Its share depends on the type of assets envisaged, the population group involved, the assessment of future income risk, and the estimation method. Despite this multiplicity of factors, precautionary saving motivated by income risk seldom exceeds 10% of financial wealth or total wealth.