What Determines Household Saving Behavior? An Examination of Saving Motives and Saving Decisions

Saving decisions are complex, since there are many concurrent motives for saving a portion of one’s income. However, while the existing literature covers all of these motives, most contributions select only one of them as a focus and relegate the others to the background by making simplifying assumptions about them. While the focus on only one saving motive is vital for many insights on aggregate saving behavior, this paper argues that further insights relevant to policy can be gained by relaxing this assumption. Using data from a random sample of German households and from federal official statistics, I explain how much people save under the explicit assumption that various different saving motives co-exist. The findings show that heterogeneity in saving behavior is systematically related to the importance that households attach to different co-existing saving motives. This suggests that policy reforms that change the importance of certain saving motives in the eyes of private households might influence their saving decisions.