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).
Mentioned in ?
References in classic literature ?
Nor was there wanting still another precautionary motive more related to Ahab personally.
''Yung fund is precautionary motive para sure tayo just in case.
Considerable interest focuses on the third order, where the early results of Leland (1968) and Sandmo (1970), tying prudence, or equivalently downside risk aversion, to the precautionary motive for saving, are now augmented by more recent studies showing that prudence implies precautionary self-protection in a temporal context (Wang and Li, 2015) and revealing the importance of prudence for predicting the effect of risk on the ranking of monitoring systems when randomized monitoring is practicable (Fagart and Sinclair-Desgagne, 2007), on patience in bargaining (White, 2008), on precautionary bidding in auctions (Kocher, Pahlke, and Trautmann, 2015), and on the private supply of public goods (Bramoulle and Treich, 2009; Eichner and Pethig, 2015), among many other applications.
He distinguishes between eight saving motives: the precautionary motive, the life-cycle motive, intertemporal substitution, improvement, independence, bequest, and avarice.
Precautionary motive emphasizes that firms retain some reserve cash to avoid risk of failure in making payment for contingency expenses.
This paper argues that currency substitution refers to a country's residents for the transaction motive, precautionary motive, portfolio motive (i.e.
The precautionary motive requires highly liquid savings in developing economies, where insurance for precautionary purposes seems to be less developed (Carrin 2002).
"The key mechanism is precautionary motive: more uncertainty induces residents to save more, and higher savings are in part channeled into foreign assets," they write.
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.
They conclude that the precautionary motive is important in accounting for higher cash holdings.
Professor Brian Morgan, director of the Creative Leadership and Enterprise Centre at the School of Management at Uwic in Cardiff, blamed a "precautionary motive" of people preferring to hold on to liquid assets - such as cash - than invest, for the sluggish growth.