Liquidity Profiles of Poor Mexican Households

Buffer stock savings theories predict that more vulnerable households build up liquid savings in order to cope with income variability. Using data from 1801 marginalized Mexican households, this paper examines how household liquidity levels vary by income level and use of banking. The paper finds strong evidence of buffer stock savings in poor and vulnerable households. It also shows that membership in a financial cooperative is a determinant of higher household liquidity levels. Financial instruments are used more to confront idiosyncratic shocks than systemic shocks. Idiosyncratic shocks and remittances are important determinants of liquidity levels in unbanked households.