Nature or Nurture, which determines how you save?

There is an interesting study by Henrik Cronqvist and Stephan Siegel that used data on identical and fraternal twins matched with data on their savings behaviour. The authors found that an individual's savings propensity is governed by both genetic predispositions, social transmission from parents to their children, and gene-environment interplay where certain environments moderate genetic influences.

Genetic variation explains about 35 percent of the variation in savings rates across individuals, and this genetic effect is stronger in less constraining, high socioeconomic status environments. Parent-child transmission influences savings for young individuals and those who grew up in a family environment with less competition for parental resources.

As an example, if you pulled two pairs of identical twins out of the population, you might find that Alice and Agnes saved 15% and 18% of their income, while Bob and Bubba saved 10% and 11%, respectively. About one-third of the difference in average savings (17.5% versus 10.5%) is due to genetic differences between the A girls and the B-boys. The A family presumably has alleles that code to more patience on the “savings gene”, while the B family has alleles that code to less patience.

Maybe as interesting as the 1/3 number is that the share attributed to common family experience is essentially zero. Their paper supports a “nature” over “nurture” view on savings behaviour.

 The authors argued in their article that people born impatient or lacking self-control might find that these traits have a consequence on their savings, and on some health issues. However, individual-specific life experiences is a very important explanation for behaviour in the savings domain, and strongest in urban communities. In a world progressing rapidly towards individual retirement savings autonomy, understanding the origins of individuals' savings behaviour are of key importance to economists as well as policy makers.

Regarding this article and some other research that indicates the influence of genes on savings behaviour, policy planners may have to reassess current public policies to see whether they are effective enough to encourage savings or to change savings behaviour.