Savings and education: a life-cycle
            model applied to a panel of 74 countries
The authors analyze how education
            contributes to savings. There are many reasons to believe
            that education and savings may be linked, either positively
            or negatively. It is generally expected that people with
            higher education will earn greater income, thereby leading
            to higher savings, even if the positive relationships
            between education and income and between income and savings
            take time to be completely realized. The relationship
            between education and income can be negative at first
            because education expenses initially increase consumption
            and reduce current disposable income. Another argument for a
            negative link concerns precautionary savings. If there is a
            precautionary motive for savings, education should reduce
            income volatility because educated people are less likely to
            be unemployed, or, if unemployed, they are covered by
            unemployment insurance. With less need for precautionay
            savings among the more educated, education and savings would
            be negatively correlated. The author's major findings
            for a panel of 74 countries over the period 1960-90 include
            the following views. Education positively influences savings
            in the long run. For each percentage point increase in
            education stock, the savings rate increases 0.37 percent.
            But it takes more than five years for the positive effect,
            through income, to compensate for the initial negative
            impact on savings. The lagged effect (five years) of a
            change in the stock of education appears positive in all
            regions except Latin America. The negative correlation in
            this region can be explained by the worsening quality of
            education, which reduces the ability to implement new
            technologies, and by the traditional focus on university
            education instead of primary and secondary education.
            Moreover, well-educated people in Latin America seem to have
            a lower precautionary motive for saving than in other
            regions. People are more productive, invest more, or are a
            better complement to physical capital in an environment
            where many people are well-educated. Accordingly, the
            positive effect of education on savings appears higher in
            industrial countries, given their higher initial stock of
            human capital, than in developing countries. The effects of
            primary and secondary education on savings are positive and
            significant in all regions, while the effects of university
            education is positive only in industrial countries. One
            explanation might be that industrial countries tend to
            invest in new projects rather than to adopt existing
            technology. The authors derive several policy
            recommendations from their conclusions. First, the positive
            effect of education on savings is enhanced by a reduction in
            the cost of education which automatically increases
            disposable income. In many countries, the unit cost of
            education may be reduced by exploiting economies of scale
            and by developing incentives for greater cost-consciousness
            among consumers and providers. Many education systems may
            need to upgrade their internal efficiency. Second, a focus
            on primary education should be encouraged, specifically in
            developing countries. The empirical results indicate that
            the positive long-run effect associated with primary
            education is twice as large as that for secondary and
            tertiary eduation. Latin America's traditional neglect
            of primary education contrasts sharply with the policy of
            Asian countries. Finally, it is important to increase the
            coverage of education, not only for equity but also for
            efficiency reasons. Indeed, how much a child learns is
            influenced by the nature of the learning environment, as
            supported by the role played by externalities and the intial
            level of education in the realtionship between eduation and savings.