With complete financial instruments, risk-averse consumers can fully insure against personal income shocks. Thus, personal consumption fluctuates only as a consequence of aggregate, not idiosyncratic shocks. According to the available evidence, aggregate and individual consumption are imperfectly correlated, suggesting that financial markets may be incomplete. In this chapter, we examine a departure from the standard model in which traders cannot fully share risks due to market incompleteness. The key feature of economies with incomplete markets is the presence of a pecuniary externality that distorts the allocation even with respect to constrained efficiency. With incomplete markets, saving instruments may be used by traders to compensate for missing insurance options, leading to over-saving relative to the efficient benchmark.