When female incomes rise, household expenditure patterns change. One oft-quoted survey paper suggests:
men spend more of the income they control for their own consumption than do women. Alcohol, cigarettes, status consumer goods, even "female companionship" are noted in these studies.
Another well known paper found that a UK policy change that transferred resources from fathers to mothers resulted in more spending on women's and children's clothing. If expenditure patterns change when one sex gains more control over household income, it makes sense that savings behaviour would change too.
But who is more likely to save, men or women?
Here is my list of reasons why women would be expected to save more:
- women live longer
- women are more likely to require long term care, because they are more likely to outlive their spouse, and they are more likely to experience a number of age-related problems
- women are more risk averse
Women should save, because they'll need the money down the road. And will save, because they worry.
Here's my list of why men would be expected to save more:
- saving begets wealth, which in turn gets men the one thing they want. For example, Wei and Zhang have recently argued that "Chinese parents with a son raise their savings… in order to improve their son's relative attractiveness for marriage."
- women invest more in their children. This phenomenon is well-documented. As yet, however, no one has really explored the flip side of investing in children: having less to invest in material assets.
- men are expected to be providers, therefore are socially conditioned to save (men worry too)
- even if men and women save at the same rate, because men are less risk averse, they will invest in riskier assets, leading to higher rates of return and thus higher stocks of wealth.
Even if we abstract from the idea of men and women having different preferences over savings, and assume that all decisions are made in total peace and harmony, there are additional reasons to expect saving rates to fall as female labour force participation rates.
Compare, for example, two families.
Old family: husband = earnings of $80,000; wife = household production of $30,000.
New family: husband = earnings of $60,000; wife = earnings of $40,000; household production of $10,000.
If we add together the value of earnings and the value of household production, and ignore taxes etc., the two families have the same total maket+household income of $110,000.
Suppose each saves $10,000. Old family's savings rate is $10,000/$80,000 or 12.5 percent. New family's savings rate is $10,000/($60,000+$40,000) or 10 percent.
The only thing that has changed is that production has moved from the household to the market, but it looks as if savings rates have declined.
Yet there are real reasons why savings rates might fall as more couples move towards being dual earner families. A second earner is insurance – if one person loses his/her job, there's still another income to fall back upon. Hence there is less need to save for a rainy day, or have precautionary savings.
Unfortunately there is little known about the interrelation between gender and savings. I am working on paper on the topic right now, and will summarize the findings here once the report has been released.
Worthwhile Canadian Initiative 
That last point about falling home production is a good one. Maybe a significant part of the decrease in household saving rates is nothing to fret over. Once retired, after all, home production can rise significantly. One wonders, though, whether that lower home production leads to less skilled retirees (less handy with power tools or around the kitchen). In which can, you’d expect a need for more savings due to having to buy more construction and restaurant services, etc. in retirement.
Andrew F – I wonder if perhaps one way of increasing savings rates is to reintroduce mandatory home economics and shop classes. Chili made from beans, onions and a few spices (as in this recipe) served over rice is far healthier and way cheaper than eating out at MacDonalds, to say nothing of more upmarket establishments. Cost/nutritional value of kraft dinner compared to pasta tossed with olive oil, garlic, parmesan cheese? But that’s small change compared to the hundreds of dollars of potential savings from knowing something about cars.
Frances Woolley, I’d rather introduce mandatory classes in personal finance, to be honest.
Besides, I’m not sure home cooking is that much cheaper than eating at a commercial establishment. It’s a nice hobby for some folks, to be sure, but it requires time and effort that could be spent working.
Auto repair I’m not really sure about, since it has been radically changed by increased complexity and the use of auto electronics. Nowadays much of it is done by using the manufacturer’s ‘official’ diagnostics to find out what went wrong and swapping out the defective part.
Anon – actually the auto electronics can work for you – you can actually buy one of those diagnostic do-hickeys, plug it into your car, read the code, write it down, look it up in the code book/internet, and figure out what’s wrong. We saved $400 that way just a few weeks ago.
Before you get too enthused about financial education, take a look at some of what’s taught in mandatory classes in personal finance.
This is a question from the Canadian financial capabilities survey, designed to measure financial literacy:
OA_Q08 Lindsay has saved $12,000 for her university expenses by working parttime. Her plan is to start university next year and she needs all of the money she saved. Which of the following is the safest place for her university money?
1. Corporate bonds
2. Mutual Funds
3. A bank savings account
4. Locked in a safe at home
5. Stocks
The answer is presumably (3), but at 1 or 2% interest on a bank savings account, it honestly doesn’t matter much whether she chooses (3) or (4) – bank interest on $1000 of savings is $20 a year. What does matter if whether she spends her work breaks buying expensive lattes at Bridgehead, or if she packs her own lunch. Packing a lunch and foregoing lattes saves at least $20 a week.
anon: “it requires time and effort that could be spent working.”
Seriously, you can’t work all the time. If one has any skill at all you can make a fine meal for a family in an hour , and it can be done in 15 minutes. So at most you forgo (or defer if you have a PVR) a TV drama, at best it’s a sitcom. And it can be done in 15 minutes if you have any skill at all – e.g. a simple fritatta is done in <15 minutes. Everyone is fed in less time than it takes to drive to the nearest fast food joint.
The returns in improved health and savings make it absolutely worth it.
Anon,
I gotta agree with Frances on this. The ability to cooks your own meals and do basic repairs around the house is probably a greater financial (and health) tool than all the personal finances courses in the world. Heck, if I put my mind to it, I can make myself a decent lunch for a week for what I spend for a take-out lunch(true, I don’t do it as often as I should, but there’s nothing like making a pot of sunday night soup or chili for lunches for the next week). The ability to cook your own meal is a far more important skill set than much of the crap they teach in schools these days and should be right of there with literacy and numeracy. If parents aren’t imparting it on their children (because, in fairness, it’s a skill set that many parents haven’t picked up on their own), someone has to do it.
There’s a great article by a physician in the UK who chronicled, amongst other things, the difference in cooking (and eating) habbits of the British born poor (who ate mostly prepared, and expensive, food) versus the foreign born poor (who retained the ability to cook the simple, healthy, and cheap, foods of their homeland) (http://www.city-journal.org/html/9_2_oh_to_be.html). Although in purely dollar terms they were each equally poor, the latter were healthier and socially better off. The author may be a bit of crank, but it’s an interesting article, and the description of the economic and social benefits of home cooking are, I think, spot on.
Bob Smith, that article is from 1999, but yes, the British folks that he mentions are poor and severely underemployed. Since they would have lots of leisure time and also spend more of their income on food, it makes sense for them to cook cheaper and healthier food at home. Many private organizations run food banks (and soup kitchens) which can provide healthy food to low-income folks.
Frances’ example, where the family switches out of home production into market production, is a good one. But I wonder what percentage of home production is saved (invested)? There could have been a decline in the true savings rate if some of the home production was for investment rather than consumption. Can’t think of a good example.
I guessed Theodore Dalrymple! He should be more widely read, depressing though he is.
Nick: “Can’t think of a good example.”
Planting an olive tree.
So, we have food banks to help low-income individuals eat nutritiously. Do we have programs where we teach people to cook nutritious meals? That might do more to reduce poverty.
I’d volunteer to teach people how to cook. Food banks seem like giving a man a fish, and no solution at all. I’d rather teach.
“Since they would have lots of leisure time and also spend more of their income on food, it makes sense for them to cook cheaper and healthier food at home”.
So it doesn’t make sense for busy/rich people to cook cheap and healthy foods? I suppose at a certain point it might make sense to hire someone who can cook better than you, but short of that… there’s no reason why you can’t cook up a decent meal in the same time it takes a restaurant to do the same thing. In any event, everyone should have the basic skills to cook if they have to, even if they are ultimately are able to choose not to (because, most people won’t be rich, and those who are might not stay that way).
In any event, you’re missing the point of Dalrymple’s article. The foreign born poor are “poor”, but they have a valuable skill set that is lost to their British born neighbours (and, it seems, to their children) that mitigates their poverty.
At the risk of heaping excessive amounts of abuse on poor Anon…
Mark Bittman has just written a rant about MacDonald’s oatmeal – another example of a food that can be made in three minutes flat at home for a fraction of the price and a multiple of the nutritional content of the restaurant version.
Mark Bittman is great. His cookbooks should be given to every high school graduate.