The role of culture and economics in household savings decisions: a conceptual framework

Purpose This study aims to identify the reason for the lack of explanation in present economic theories for the presence of low household savings rates in some high-income countries and high household savings rates in some low-income countries. Design/methodology/approach We perform a narrative review of the literature on household savings to build a conceptual framework for household savings. Then, we conducted a survey on household finances from US and Indian nationals to understand their motives for savings, their ability to maintain their finances and their present levels of household savings and debt. Findings It is found that the present theories and empirical evidence on household savings do not adequately explain the phenomenon of low savings rates found in some high-income countries and the high savings rates found in some low-income countries. We find that the underestimation of the impact of cultural factors on household savings is the most likely reason for the same. A comparative analysis of household finances in the USA and India using a survey provides supporting evidence for the above proposition. Originality/value This paper contributes a conceptual framework that shows the impact of cultural factors on the Marginal Propensity to Consume in households. It highlights the connection between cultural factors like Thrift and Long-Term Orientation and the prevailing rates of household savings and debt. The paper provides empirical evidence using primary data from a survey on household finances in the USA and India to support the above findings.