Precautionary motive

Precautionary motive

A desire to hold cash in order to be able to deal effectively with unexpected events that require cash outlay.

Precautionary Motive

The desire to keep extra money in case an unforeseen situation requires a capital outlay. For example, one may wish to save extra money to pay for medical bills in case of an accident. According to John Maynard Keynes, people keep savings accounts, as well as some stocks and commodities, with a precautionary motive in order to cover unexpected events. See also: Precautionary demand (for money).
References in classic literature ?
Nor was there wanting still another precautionary motive more related to Ahab personally.
It is focused on the precautionary motive for holding reserves, and has two aims: (i) to explore the role reserves play in preventing and mitigating crises; and (ii) to consider in what ways analysis on reserve adequacy may need to be augmented to account for country-specific factors.
Kaynes [5] suggests that there are three incentives for reserve cash holdings including transaction motive, precautionary motive and speculative motive.
This result confirms the strength of the precautionary motive in the economy well beyond the usual precautionary saving motive.
For example, the expansion of China's government into health care and pensions will be a pertinent move to reduce households' precautionary motive for saving.
Fourthly, during slowdown a dominance of precautionary motive may induce consumer to either defer their spending decisions or shift to unbranded alternatives.
These policies included, strengthening domestic consumption requires policies which transfer more corporate savings to households, as well as policies which reduce the precautionary motive for savings among households.
This model was further revised to include intergenerational transfer motive (saving for children) (Barro, 1978; Kurz, 1984) and precautionary motive (Saving for emergencies) (carroll, 1997).
Keynes's Liquidity Preference Theory asserts that there are three motives for holding money--1) a transactions motive 2) a precautionary motive and 3) a speculative motive.
We exploit cross-sectional mortgage data to investigate the importance of liquidity constraints and a precautionary motive in the demand for housing.
21) The presence of a precautionary motive for savings also helps explain some otherwise puzzling features of savings behavior within a traditional lifecycle model, such as the sensitivity of consumption to temporary income.
The rationale for this extra demand is a precautionary motive for insurance.