Household Characteristics and Saving Motives: Application of Multinomial Logistic Regression to Examine Maslow's Hierarchy of Needs Theory

Household Characteristics and Saving Motives: Application of Multinomial Logistic Regression to Examine Maslow's Hierarchy of Needs Theory

Sajid Haider (COMSATS Institute of Information Technology Vehari Campus, Vehari, Pakistan), Munir Ahmed (COMSATS Institute of Information Technology Vehari, Vehari, Pakistan), Carmen de Pablos (Rey Juan Carlos University in Madrid, Spain, Madrid, Spain) and Aasma Latif (COMSATS Institute of Information Technology Vehari Campus, Vehari, Pakistan)
Copyright: © 2018 |Pages: 18
DOI: 10.4018/IJABE.2018010103

Abstract

The main objective of this study was to examine the likelihood of household savings in relation to their characteristics, and analyze whether households move to upper level in hierarchy of saving motives as described in Maslow's Hierarchy of Needs Theory. This research used primary data by using a questionnaire with six categories of saving motives—daily expenses, emergency motives, major purchases, retirement, children, and investment. Multinomial logistic regression was used to test the relationship between household characteristics and saving motives. The results indicate that households with different characteristics save for different motives, and a change in household characteristics causes movement in the hierarchy of saving motives. Lower income households save for lower level needs i.e. daily expenses, while high income households save for higher needs such as investment. Savings for children was reported as the most important saving motive and existed in almost all income groups. Results have implications for policy makers and professional in behavioral finance.
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1. Introduction

Understanding household saving motives is important, especially, in developing countries where unlike developed nations a solid social security system does not exist, and consequently households are less likely to live a secure and balanced life in the absence of an appropriate savings plan (Remble et al., 2013). So, savings play an important role to meet financial emergencies and reduce risk of having inadequate resources in future (Haron et al. 2013). Household savings affect a family’s standard of living and improve the capability to meet financial goals such as making purchases using cash rather than credit. Saving out of current earning provides retirement security, helps occupants to become homeowners without undue risks, and improves household’s ability to deal with emergency situations, such as accidents, any case of death and other purposes.

Despite the fact that understanding household saving motives is important for improving our knowledge of households’ financial goals, and enhancing our ability for households’ financial counseling, empirical research on this issue is rare (Claycamp, 1963; Davis and Schumm, 1987; Xiao and Noring, 1994; Haronet al., 2013). Advancement in this line of research can help us understand household saving behaviors from both theoretical and practical perspective (Canova et al., 2005).

Some economic models provide insights into household saving motives but have been criticized by contemporary researchers. Xiao and Noring (1994) and Haron et al. (2013) described two major shortcomings of Economic Models. First, economic models assume saving motives but without any empirical investigation. Second, economic models assume only one saving motive, such as saving for retirement in (Modigliani, 1986), and ignore that the savings can undertake multiple motives. In order to address these shortcomings, behavioral/psychological models were considered in the study of saving motives. In contrast to Keynesian thoughts of slow change in saving motives, behavioral models assume that tastes are not fixed, and household’s ability and willingness to save matters (Katona (1951, 1975) and DeVaneyet al. (2007). Shefrin and Thaler (1988) integrated psychological theory into the standard economic model of saving to propose a behavioral life-cycle hypothesis. Their hypothesis views people as both planners and doers. As planners, they worry about lifetime utility and as doers they give attention to the present (DeVaneyet al. 2007). According to this hypothesis people tend to save for different motives. Moreover, saving motives differ among the households with different characteristics (Yao et al. 2015).

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