Have Filipino Households Become Less Prudent?

Abstract

Throughout the 2000s, the average household saving rate in the Philippines declined sharply. This article explains why households' consumption growth has been higher than income growth during this period. Tracing cohorts shows that saving declined across all demographic groups. A test that provides the strength of the precautionary saving motive yields a plausible explanation that households have become financially constrained and less prudent in recent years. This article argues that these patterns are best explained by the extended coverage of the social security system particularly to informal sector employees during the 1990s in the Philippines.