Physical climate risk and household saving behavior: Evidence from China

Abstract

Physical climate risks have increased in frequency and severity, significantly impacting household assets, health, and overall living costs. Using the China Household Finance Survey, this study investigates the influence of physical climate risks on household saving behavior among Chinese households. Our results suggest that physical climate risk exerts a positive influence on household saving rate, indicating a precautionary saving motive among households facing climate-related threats. The underlying mechanisms suggest that physical climate risk affects household saving rate via health risk and liquidity constraint. Although physical climate risks lead to higher precautionary savings, commercial insurance can mitigate the need for precautionary savings. Our findings also suggest a stronger positive causal relationship between physical climate risk and saving rate for less-educated, less risk-tolerant households, and residents of regions with adverse climate conditions and rural areas.