Do Non-Prudent Consumers Ever Engage in Precautionary Saving? Two Observations on Risk and Precautionary Saving

Luigi Ventura and Charles Horioka

No DP2025-28, Discussion Paper Series from Research Institute for Economics & Business Administration, Kobe University

Abstract: Previous authors have asserted that precautionary saving will arise only if consumers are not only risk-averse but also prudent, but in this paper, we first show that when saving occurs in the context of a financial economy featuring at least one other asset, prudence is neither necessary, nor sufficient, to generate precautionary saving, i.e. saving induced only by variance in income. Then, simplifying and elaborating on some results presented in Eeckhoudt and Schlesinger (2008), we address a particular form of precautionary saving, which we name “intertemporal precautionary saving” to distinguish it from purely intertemporal and purely precautionary saving, and show that it will inevitably arise in the case of pure (downside) risk as long as consumers are risk-averse, regardless of whether or not they are prudent, and that prudence will affect only its extent. Thus, our paper challenges the conventional wisdom on precautionary saving in at least two ways.

Keywords: Household saving; Precautionary saving; Prudence; Pure risk; Risk aversion; Saving; Speculative risk (search for similar items in EconPapers)
JEL-codes: D11 D14 D15 D81 E21 G51 (search for similar items in EconPapers)
Pages: 15 pages
Date: 2025-12
New Economics Papers: this item is included in nep-eur, nep-fdg and nep-upt
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https://www.rieb.kobe-u.ac.jp/academic/ra/dp/English/DP2025-28.pdf Revised version, 2025 (application/pdf)

Related works:
Working Paper: Do Non-Prudent Consumers Ever Engage in Precautionary Saving? Two Observations on Risk and Precautionary Saving (2025)
Working Paper: Do Non-Prudent Consumers Ever Engage in Precautionary Saving? Two Observations on Risk and Precautionary Saving (2025)
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