An interesting point being made. Immigrant culture matters over savings decisions in the country immigrated to. OK, seems obvious enough really. Now, what other parts of original culture also matter? Perhaps something we should also study?

Culture matters in saving behaviour
Joan Costa-i-Font, Paola Giuliano, Berkay Ozcan 30 September 2018

Previous studies have shown that saving rates are influenced by, among other things, demographics and income, but much of the difference in saving rates across societies remains unexplained. This column uses data covering three generations of immigrants in the UK to demonstrate that culture is an important explanation for cross-country differences in saving behaviour. When designing incentives to save, culture should therefore be taken into account.

Savings are important drivers of economic activity and growth, as well as ensuring the sustainability of pension systems and helping to determine the international balance of trade. We know saving rates are influenced by demographics (Cigno and Rosatti 1996), differences in income and growth rates (Laitner 2000, Edwards 1996), the type of social security and tax system (Kotlikoff 1989), housing price differentials (Case et al. 2005), and financial liberalisation (Bandeira et al. 2000). But even after controlling for differences in these covariates, a large part of the differences in saving rates across societies is unexplained. One explanation may bethat savings are also determined by culture-specific norms.

The ‘cultural saving motive’

Previous research (Carroll et al. 1994) could not find evidence of a cultural saving motive. They used data from the Canadian Surveys of Family Expenditures to study the saving behaviour of first-generation immigrants in Canada, and test whether saving rates varied systematically by place of origin. But the sample was small, the authors knew only broad geographical regions rather than country of origin, and did not control for wealth.

In our recent work (Costa-Font et al. 2018) we have re-examined the cultural saving motive by looking at the saving behaviour of three generations of immigrants in the UK. The UK is one of the largest immigrant-receiving countries, with immigrants from many countries of origin.

This strategy mitigates (though it does not totally eliminate) problems of selection and disruption due to immigration. We could control for wealth, and had access to detailed information on both actual and self-reported savings. We use a measure of saving rate over GDP, calculated from 1990 until 2010, as a proxy for culture. We attribute the association found in our data between the behaviour of immigrants and the saving rate in the country of origin to differences in cultural beliefs across immigrant groups.

Migration as a natural experiment

Although migrants leave the economic and institutional conditions that determined their saving behaviour behind, they bring their cultural beliefs with them. If savings/GDP at the aggregate level in the home country explains the variation in saving outcomes in the host country, even after controlling for their individual economic attributes, only the cultural component of this variable can be responsible for this correlation.

This is because immigrants from different countries now have the same economic and institutional environment in the UK. We can attribute the correlation of saving behaviour for different generations with saving outcomes in the country of origin to intergenerational cultural transmission.

What does the evidence show?

Immigrants from cultures with high saving rates also have higher saving rates in the UK. This finding is strong for first- and second-generation immigrants. It is even present in the third generation (Figure 1).

Figure 1 Saving rates for third-generation immigrants in the UK correlates with saving rates in home country

Source: Costa-Font et al. (2018).
Notes: Log (amount saved) for third generation immigrants is the log of the self-reported monthly amount of saving divided by the net monthly household income. The saving rate in the countries of origin indicates the average gross domestic savings over GDP from 1990-2010. 

The regression estimates suggest that one standard deviation change in the country of origin saving rate is associated with an increase of saving rates of 0.051 standard deviations in the first generation, 0.040 standard deviation in the second generation and 0.025 standard deviation in the third. The impact declines across generations. The size of the effect is roughly 40% of the effect of having a college degree, and 50% of the income effect. This result was not affected by the exclusion of small countries. We exclude self-reporting bias, because the effects hold when savings are measured using wealth information.

What are the implications?

Prevailing evidence suggests that culture does not play a role in saving behaviour. But we have found evidence consistent with a cultural saving motive. This implies that, when we designing incentives to save, we should take culture into account.

Subscribe to The CT Mailer!

2
Leave a Reply

Please Login to comment
1 Comment threads
1 Thread replies
0 Followers
 
Most reacted comment
Hottest comment thread
2 Comment authors
SpikeRhoda Klapp Recent comment authors

This site uses Akismet to reduce spam. Learn how your comment data is processed.

  Subscribe  
newest oldest most voted
Notify of
Rhoda Klapp
Member
Rhoda Klapp

Different cultures in a country, well, a shared geographical location, have different economies, co-existing but largely separate. How could the ilegal immigrants in Tx get pickup trucks to create businesses with when as a well-paid UK incomer I could not get a credit rating for a year or more? Different economies, co-located, that’s how. In North Dallas it looks like there is an Indian economy too, fuelled by H1Bs in the tech industries and their copious extended families. They are probably not able to measure those economies in any meaningful way to the depth required to compare savings rates, IMHO.

Spike
Member

A Mexican working under the table is less likely to prove creditworthiness than a Brit living in Texas, nor to have family resources to rely on. It is the Chinese who operate rotating savings clubs on behalf of family members. The pickup truck in question belonged to someone else. But Indians who elect to come to the US are not too culturally different from Americans. A Peruvian ex asserted that a Peruvian coming into wealth (typically through the national lottery) would not put the proceeds in the bank but would promptly throw a gigantic block party. This, as well as… Read more »