Experienced-based learning, the idea that beliefs and choices can be shaped by personal experiences, has been documented in different domains ranging from stock market investment, to corporate finance decisions, political preferences, and beliefs, and inflation expectations. In this project, we explore whether experience-based learning can explain saving and borrowing behavior. Using survey data that features detailed information about the beliefs and preferences of consumers, we study the effect of unemployment experience, measured as the weighted average of national unemployment rates experienced over the lifetime of an individual, where earlier experiences receive a lower weight, on savings and borrowing. We then study the relationship between several saving motives and unemployment experience. This project contributes to our understanding of the origins of economic fluctuations by providing empirical support for the popular idea that living through tough economic times may depress consumer sentiment and, hence, aggregate demand.
