The protective role of saving: Bayesian analysis of British panel data

Abstract

We explore whether a protective role for savings against future financial hardship exists using household level panel data for a nationally representative sample of UK households. We jointly model the incidence and extent of financial problems, using a dynamic two-part approach allowing different data-generating processes for experiencing financial hardship and the extent of financial hardship experienced. Our results show that: (i) saving on a regular basis mitigates against the likelihood of experiencing, as well as the number of, future financial problems

(ii) state dependence in financial problems exists

(iii) interdependence exists between financial problems and housing costs, with higher housing costs associated with an increased probability of experiencing financial hardship.