Short-term Precaution, Insurance, and Saving Mechanisms in Rural Vietnam

This study investigates the impact of short-term precautionary selection and insurance on household decisions with respect to their participation in different saving mechanisms in rural Vietnam. A two-part model is used for the analysis and, unlike other studies, this paper investigates household decisions on participation in, and contribution, to formal and informal saving intermediaries. Furthermore, this study controls for the endogeneity of short-term precautionary motives and insurance in a household contribution model. This paper’s findings suggest that short-term precautionary motives reduce the probability of a household engaging in formal and informal saving intermediaries. In addition, insurance is found to be its substitute. Finally, precautionary savings appear to reduce participant deposits into formal saving intermediaries. However, there is no evidence of the effect of the insurance variable on household contributions to saving intermediaries.