Saving for Rainy Days:
Evidence from Rural Households at Zhejiang, China

LING Jin, CHEN Kevin, HUANG Zuhui

IFPRI

Abstract:
This paper investigates how heterogeneous rural households use assets accumulation and de-accumulation to insulate against income risk based on a balanced rural household panel data from 1986-2006 from the Zhejiang Province, China. The magnitude of precautionary wealth is estimated using the wealth equation approach. The results suggest that income risk affects the wealth significantly. However, the calculated average contribution of precautionary saving to the total net wealth is about 3.4%, which represents a modest contribution of precautionary savings to total net wealth comparing to the evidence of existing literature. It is particularly interesting to find that, after splitting the sample by the principal income source, only rural households relying on income from agriculture exhibits a significant precautionary saving motive. The other three groups (income from non-agricultural household-based business operations, off-farm investment and off-farm labor income), appear to rely on other means such as labor supply and mutual help within extended family and village, or save for specific motives other than precautionary one.

Key Words: income risk; precautionary saving; income portfolio