The rationality of rainy day savers: objective and subjective determinants of individual savings in Britain

Using the largest and richest data on savings in Great Britain, six waves of the Wealth and Assets Survey from the Office for National Statistics, we compare standard life cycle models of saving with models using more 'subjective' measures, and the added dimension of longitudinal data. Whilst the life cycle model provides a benchmark, regular criticisms remain, particularly people's propensity to continue saving at older ages. Data on attitudes attenuate that issue, and panel data largely eliminate it. Our results confirm empirically, for Great Britain, the importance of some of the objective determinants of savings included in life cycle theory. When we look at more subjective ones, we show that other factors, including self-rated health and financial pressure, provide an enhanced direct explanation of the propensity to save. Individuals who regard themselves as 'rainy day savers' tended to save more, irrespective of their demographic or financial circumstances. Results are robust to different specifications.