THE SAVINGS ACCOUNT AS A SOURCE FOR FINANCING LARGE EXPENDITURES*

Abstract

THE RAPID GROWTH of consumer balances in savings accounts' during the 1960's raises important questions about people's readiness to make consumption expenditures out of these funds. Under what circumstances are savings balances utilized to finance large outlays which the family cannot pay for out of current income? How likely is it that the accumulation of large savings balances may finance a major consumer spending spree? How do withdrawals for consumption purposes affect the accumulation of savings in the longer run? To answer these questions it is not sufficient to study attitudes toward the use of the savings account and recent decisions to make withdrawals. One must also determine how promptly and how fully funds in the account are replaced. It is with these questions that this paper is concerned. Survey Research Center studies have shown repeatedly that savings are accumulated as protection against emergencies and for important long-run purpose, particularly retirement, the education of children, and the purchase of a house. We shall see, however, that as long as the money is there, savings account owners often do use their savings accounts as a source for financing large expenditures. For many families drawing on the savings account is a major alternative to the use of installment credit, although resort to a combination of both sources of funds is not infrequent. Families which are willing to make withdrawals from their savings accounts are for the most part those which are in a strong financial position and have savings habits and motivations which have enabled them in the past to build up their savings balances. These families treat their savings account as a revolving fund out of which major consumption outlays can be financed. They intend to replace withdrawals promptly out of current income. The new survey data show that as a rule these good intentions are indeed carried out. Thus willingness to withdraw from the savings account for large consumption outlays does not imply willingness to dissipate savings for consumption purposes. The data for this investigation were collected by means of a survey conducted in October-November 1965 by the Survey Research Center of the University of Michigan. The 1965 survey built on and continued a study undertaken in May 1964.2 One purpose of the November 1965 survey was to