Motives and attitudes for saving among young Georgians

Abstract

Abtract. The paper concerns motives and attitudes of young Georgians towards saving. The goal of this work is to point out differences between those who save and those who do not save money in the context of these motives and attitudes. Additionally, the relationship between saving and demographical factors, along with life satisfaction, was studied. It was noted that Georgians' views on saving money often originate from culture and differ from what is observed in Western Europe. The results that are described come from the primary research conducted in Georgia in 2014.Key words: saving, saving behaviour, households, Georgia, test of independenceJEL classification: D12, D14, E21, G02Introduction and literature reviewThe theory of economy defines saving as a behaviour in which part of the income has not been released for consumption. This definition is static since it relates income to consumed earnings, but does not account for conscious decisions on saving, motives of saving or methods of self-control that are a subject of analysis in the psychological theory of saving (Zaleskiewicz 2011). On the other hand this definition covers the relationship observed by many researchers (e.g. Davis, Schumm 1987, Xiao, Noring 1994, Loayza, Shmidt-Hebbel, Serven 2000, Harris, Loundes, Webster 2002), in which the amount of savings depends on the income of the household or even the level of economic development of the country (Ogaki, Ostry, Reinhart 1996).In economy there are three prevailing theories concerning saving: relative income theory, permanent income theory and life-cycle theory. The relative income theory (Duesenberry 1949) assumes that the amount of spending on consumption does not depend on the income of the individual, but instead it depends on the standard of living in an environment where the individual lives. Thereby, according to the author of this hypothesis, people living in a partic10.14254/2071789X.2015/8-1/13 ular environment spend similar amounts of money, and their savings are a result of differences between earnings and the amount of spending that occurs within the desired standard of living.On the other hand the permanent income theory (Friedman 1957) assumes that amount of spending is characterized by a permanent level dependent on anticipated standard of living throughout a person's entire life. In order to maintain the expected standard of living the amount of spending must allow for creating a sense of security in the form of savings. The amount of money set aside for the future would be also increased by all raises or unexpected additional income.The last common hypothesis is the life-cycle theory (Ando, Modigliani 1957), which assumes that people accommodate their savings to the stage of their life. In the beginning, young people with low income tend to take loans, but over the years their earnings rise, and they repay debts and accumulate savings required for retirement when their income is expected to be low again. Hence, according to the authors of this hypothesis, the main motive for saving is to secure one's future and, e.g. for finances to not be a concern for children. Thereby the life-cycle theory assumes that the amount of saving is determined by the age structure of population and the assessment of individual financial security.All three theories presented above assume that people are able to rationally assess their needs throughout their entire lives and maintain them at a constant level. Each theory identifies a different main motive, but all of the theories assume that the motive remains unchanged throughout the entire life of an individual. These theories do not account for changing individuals' financial situations, or different starting income levels or saving due to various, changing motives. In response to these shortcomings researchers began to look for psychological explanations to the economical theories of saving. One such theory, the behavioural life-cycle theory (Shefrin, Thaler, 1988), assumes a twofold human nature - on one hand, the desire to immediately satisfy needs (doer), and on the other, to secure the future (planner). …