The role of cultural attributes in household savings behavior

The purpose of this thesis is to examine the effect of culture on household savings. In the theoretical part, I review consumption theories that are related to country differences in saving rates. Subsequently, I discuss which cultural aspect is related to savings utilizing Hofstede’s framework of cultural dimensions and psychological determinants of saving behavior. In the analytical part, I analyze the effect of culture on household savings using panel data of 26 countries for 26 years (1995-2020) and Hofstede’s cultural indices . Relying on Hausman test, I confirm that culture does have an effect on household savings. Next, I use OLS regression and 2SLS regression to investigate which Hofstede’s cultural dimension affects household savings. It turns out that the level of power distance, individualism, uncertainty avoidance, and long-term orientation positively affect household savings, while the level of indulgence negatively affects household savings. Additionally, results from dominance analysis show that culture can explain about 30 % of country difference in household savings among all explanatory variables, including economic, demographic, and institutional factors. These results imply that culture has a significant impact on household savings and is one of the most important factors that determines household savings.