The relationship between precautionary motive and savings of urban households in China: An empirical study

The excessive increase in savings of Chinese households and the savings motive of urban households who hold most of savings have attracted great attention of academic community as well as policy maker in recent years. Based on the theory of precautionary savings, this paper directly introduces the future uncertainty into the savings models as an independent variable, moreover, simultaneously take the income shock and the expenditure shock in future into consideration and adopt special methods to measure the future uncertainty. Additionally, this paper collects and processes the related data from 35 large cities over the period of 1987 to 2006, and use multiple linear regression analysis. This study finds that the precautionary motive resulting from future uncertainty is positively related to the savings of urban households in China through comparing and analyzing the regression results of the savings models, however, the degree of correlation between them is lower than expected. After analyzing the main reasons for this result, this paper proposes some suggestions on slowing the increase of the savings and stimulating the consumption of Chinese households.