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Liquidity constraints and debts: Implications for the saving behavior of the middle class
Author(s) -
ToussaintComeau Maude
Publication year - 2021
Publication title -
contemporary economic policy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.454
H-Index - 49
eISSN - 1465-7287
pISSN - 1074-3529
DOI - 10.1111/coep.12521
Subject(s) - market liquidity , debt , payment , monetary economics , economics , middle class , interest rate , liquidity crisis , liquidity risk , business , finance , market economy
Savings are essential for families to respond to risks against adverse financial shocks and reduce costs of uncertainties in the future. However, personal savings have been decreasing among US households. This study analyzes the determinants of liquidity constraints and savings for the relatively understudied middle class. The study finds evidence of substantial liquidity constraints—Eighty percent of households in the middle class are liquidity constrained. Furthermore, the results suggest that high‐debt payments and high‐interest‐rate credit cards amplify the effects of liquidity tightness and hinder savings for children's education, a first‐home purchase, or later‐on‐in‐life medical spending.