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Liquidity constraints and debts: Implications for the saving behavior of the middle class

Maude Toussaint‐Comeau

Contemporary Economic Policy, 2021, vol. 39, issue 3, 479-493

Abstract: Savings are essential for families to respond to risks against adverse financial shocks and reduce costs of uncertainties in the future. However, personal savings have been decreasing among US households. This study analyzes the determinants of liquidity constraints and savings for the relatively understudied middle class. The study finds evidence of substantial liquidity constraints—Eighty percent of households in the middle class are liquidity constrained. Furthermore, the results suggest that high‐debt payments and high‐interest‐rate credit cards amplify the effects of liquidity tightness and hinder savings for children's education, a first‐home purchase, or later‐on‐in‐life medical spending.

Date: 2021
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Handle: RePEc:bla:coecpo:v:39:y:2021:i:3:p:479-493