Migrants and their children and grandchildren in the United Kingdom share the same savings habits as their country of origin, according to a new study by the London School of Economics (LSE).
The study, titled “The cultural origin of saving behavior,” published in PLOS journal and funded by the LSE, found that immigrants coming from countries with high saving rates also tend to save more in the United Kingdom and that the savings culture plays an important role until the third generation.
“(The) likelihood that Indian origin people report to have saved at the end of the month is roughly 30% for all generations, which closely matches with their home country savings,” study co-author Berkay Ozcan was quoted as saying by the Hindustan Times.
The study found that UK-born children of immigrants from countries with a culture of high savings, such as India and China, had the habit of saving more. On the other hand, children and grandchildren born to people from countries with a culture of saving less had the habit of saving less.
This is because there’s a vast difference on the importance of savings across cultures and this gets percolated down into the behavior of people born outside their country of origin, the authors said, adding that the impact seems to be declining across generations.
“This study is important because it contributes to understanding the determinants of saving behavior…Our research shows that culture is an important determinant and should be taken into account when designing incentives and policies for saving behavior,” Ozcan said.
For the study, researchers looked at the saving behavior of three generations of immigrants in the United Kingdom and used data from the Understanding Society Survey, the largest UK household longitudinal survey. They studied the cultural determinants of savings from factors like tax code, social security system and any institutional and economic factors.
“Traditional economic interpretations have not been successful in explaining differences in saving rates across countries. One hypothesis is that savings respond to cultural specific social norms. The accepted view in economics so far is that culture does not have any effect on savings,” the report said about the study, which was conducted using a novel dataset to examine the saving behavior of up to three generations of immigrants in the United Kingdom.
“Against the backdrop of existing evidence, we find that cultural preferences are an important explanation for cross-country differences in saving behavior, and their relevance persists up to three generations,” it said.
The United Kingdom was chosen for the study because it has one of the largest immigrant populations, with a large variation in the country of origin, of up to three generations of immigrants. This made it easy for the authors to get the right kind of data on the savings culture.