Couples tend to save significantly more as the risk of divorce increases according to new research published in the latest edition of The Journal of Human Resources.
The research by Dr Berkay Ӧzcan from LSE and Dr Libertad González from Pompeu Fabra University in Barcelona found that for every ten per cent increase in the risk of divorce, families increase their savings, as a proportion of household income, by two percentage points.
Dr Berkay Ӧzcan said: “Divorce is a costly business with solicitors’ bills and the added expense of new housing arrangements and so on. Our research suggests that as the risk of divorce goes up, so couples prepare for it with ‘precautionary savings’ – even if ultimately they stay married.”
The researchers’ findings are based on the saving behaviour of married couples in the Republic of Ireland before and after the legalisation of divorce in 1996.
They estimated that an increase in the risk of marital separation of about 40 per cent among non religious marriages after the reform led to these couples increasing their savings by 5 – 8 per cent of income relative to religious households – which were relatively unaffected by the legalisation of divorce.
Dr Libertad González said: “We found that married couples in Ireland saved more after 1996, both in absolute terms and relative to single individuals and to married couples in other European countries. Moreover the increase was particularly pronounced for nonreligious marriages relative to religious ones.”
These extra savings appear to come from a reduction in household spending.
The change in the law also led to the proportion of non religious households that had savings rising by up to 13 per cent, depending on the dataset looked at.
The researchers found the same results across three different surveys covering household savings in Ireland.
'The Risk of Divorce and Household Saving Behaviour', González and Ӧzcan, is published in the Spring 2013 issue of The Journal of Human Resources [subscription needed]
Published 29 April 2013
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