the wealth and saving of uk families on the eve of the crisis
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The wealth and saving of UK families on the eve of the crisis. Thomas F. Crossley and Cormac O’Dea Institute for Fiscal Studies. Association of British Insurers Bank of England Barclays Chartered Institute of Personnel and Development Department for Work and Pensions - PowerPoint PPT PresentationTRANSCRIPT
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The wealth and saving of UK families on the eve of the crisisThomas F. Crossley and Cormac O’DeaInstitute for Fiscal Studies
© Institute for Fiscal Studies
IFS Retirement Saving Consortium• Association of British
Insurers• Bank of England• Barclays• Chartered Institute of
Personnel and Development
• Department for Work and Pensions
• Financial Services Authority
• HM Revenue and Customs
• HM Treasury• Investment Management
Association• Pensions Regulator• Personal Accounts
Delivery Authority• Scottish Widows• The Actuarial Profession
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Motivation for this research: Where to look to study Household Saving?• Most high profile measure of Household Saving is the
ONS Household Saving Ratio, released quarterly.– This is a measure of the total saving undertaken in the
economy
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Household Saving Ratio, Annual, 1963 - 2009
0%
2%
4%
6%
8%
10%
12%
14%
Report Figure 1.1, Source: ONS
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Household Saving Ratio, Quarterly, 2000-2010
2000
2000
2001
2001
2002
2002
2003
2003
2004
2004
2005
2005
2006
2006
2007
2007
2008
2008
2009
2009
2010
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
Source: ONS
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Household Saving Ratio• The most high profile measure of Household Saving is
the ONS Household Saving Ratio, released quarterly.• This is a measure of the total saving undertaken in the
economy– A useful summary of the total volume of saving being done
in the economy.• But we would caution against relying on it for questions
related to the adequacy of wealth for retirement– It is dominated by the saving of the those with the greatest
income.– Contains limited information about trends in saving among
those with low and middle incomes.– An economy-wide average: contains no information on
distributional questions such as who saves and who doesn’t.
– Measured with a great deal of uncertainty• Calculated as the difference between two large aggregates, themselves
measured with error.
Can we look at household saving using microdata?
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19741976
19781980
19821984
19861988
19901992
19941996
19982000
20022004
2006-2%
0%
2%
4%
6%
8%
10%
12%
14%
16%HSR (Nat. Acc.)Expenditure and Food Survey
Year
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In the report, using the British Household Panel Survey, we calculate two measures of wealth...• Liquid Financial Wealth
– Balances in savings accounts plus bonds/equities less non-mortgage debt
• Financial and Housing Wealth– Liquid Financial Wealth plus value of housing less
outstanding mortgage debt• Use these measures to:
– Calculate saving rates between the two years which is:
© Institute for Fiscal Studies
In the report, using the British Household Panel Survey, we calculate two measures of wealth...• Liquid Financial Wealth
– Balances in savings accounts plus bonds/equities less non-mortgage debt
• Financial and Housing Wealth– Liquid Financial Wealth plus value of housing less
outstanding mortgage debt• Use these measures to:
– Calculate saving rates between the two years which is:
2000
20002005
IncomeWealthWealth
...and summarise the distribution of wealth and saving according to household type
• We define family groups according to:– Age, Income, Family Type, Housing Tenure, Pension
Payments– Summarise the distribution of wealth and saving for each
group• Family level analysis
– A family is defined as a single adult or couple with any dependent children
• What important assets are we missing from the data?– Cash and current account balances– Pension Wealth
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The rest of this presentation....• Summary of wealth distribution in 2005
– Illustrate patterns by age, income
• Summary of saving behaviour between 2000 and 2005– Again, illustrate patterns by age, income– Dramatic differences in saving rate depending on whether
changes in housing equity are included in saving or not
Distribution of Financial Wealth, 2005
Net financial Wealth(£)
10th percentile25th percentileMedian 1,09175th percentile90th percentile
Mean 21,617
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Report Table 3.2
Distribution of Financial Wealth, 2005
Net financial Wealth(£)
10th percentile −7,63725th percentile −328Median 1,09175th percentile 16,38390th percentile 58,849
Mean 21,617
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Report Table 3.2
Distribution of Financial Wealth, 2005Financial Wealth as a Proportion of Annual Income
Proportion of Families
<−100%<−50% <−25% < 0% <25% <50% <100%
Total
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Distribution of Financial Wealth, 2005Financial Wealth as a Proportion of Annual Income
Proportion of Families
<−100% 3.7%<−50% 7.6%<−25% 12.5%< 0% 27.5%<25% <50% <100%
Total 100.0%
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Distribution of Financial Wealth, 2005Financial Wealth as a Proportion of Annual Income
Proportion of Families
<−100% 3.7%<−50% 7.6%<−25% 12.5%< 0% 27.5%<25% 61.1%<50% <100%
Total 100.0%
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Distribution of Financial Wealth, 2005Financial Wealth as a Proportion of Annual Income
Proportion of Families
<−100% 3.7%<−50% 7.6%<−25% 12.5%< 0% 27.5%<25% 61.1%<50% 69.2%<100% 78.1%
Total 100.0%
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Financial Wealth in 2005, Means, by Age
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<25 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74 75+-10,000
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
Age Group
Net
Fin
anci
al W
ealth
– P
er F
amily
(£)
Report Figure 3.1
Financial Wealth in 2005, Means and Medians by Age
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<25 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74 75+-10,000
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
Age Group
Net
Fin
anci
al W
ealth
(£) –
Per
Fam
ily
Mean
Median (p50)
Report Figure 3.1
Financial Wealth in 2005, by Age
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<25 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74 75+-30,000
-10,000
10,000
30,000
50,000
70,000
90,000
110,000
130,000
150,000
Age Group
Net
Fin
anci
al W
ealth
(£) –
Per
Fam
ily
Mean
p90
p75
p50 (Me-dian)
p25
p10
Report Figure 3.1
Financial and Housing Wealth in 2005,by Age
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<25 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74 75+-50,000
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
Age Group
Net F
inan
cial a
nd H
ousin
g W
ealth
(£) –
Per
Fam
ily
Mean
p90
p75
p50 (Me-dian)
p25
p10
Report Figure 3.2
Financial Wealth in 2005,by Income Decile
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Report Figure 3.3
Poorest 2 3 4 5 6 7 8 9 Richest0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
100,000
Income Decile
Net
Fin
anci
al W
ealth
(£) –
Per
Fam
ily
Mean
p90
p75
p50 (Me-dian)
p25
p10
What happened to the wealth distribution between 2000 and 2005?
Financial Wealth (£)
2000
Financial Wealth (£)
200510th pct25th pctMedian 737 1,09175th pct90th pct
Mean 14,980 21,617
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What happened to the wealth distribution between 2000 and 2005?
Financial Wealth (£)
2000
Financial Wealth (£)
200510th pct -5,408 -7,63725th pct -335 -328Median 737 1,09175th pct 11,055 16,38390th pct 41,762 58,849
Mean 14,980 21,617
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Report Table 3.1
What happened to the wealth distribution between 2000 and 2005?
Financial Wealth (£)
2000
Financial Wealth (£)
2005
Housing Wealth (£)
2000
Housing Wealth (£)
200510th pct -5,408 -7,637 0 025th pct -335 -328 0 0Median 737 1,091 12,283 60,07075th pct 11,055 16,383 81,730 172,56590th pct 41,762 58,849 172,063 294,889
Mean 14,980 21,617 60,255 115,139
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Report Table 3.1
Turning to saving...• A reminder:
– We calculate saving rates between the two years which is:
• We now show median saving rates.
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2000
20002005
IncomeWealthWealth
Median Annual Saving Rates, (Financial Wealth), by Age
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<25 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74 75+-1%
0%
1%
2%
3%
4%
5%
6%
Age Group
Med
ian
Savi
ng R
ate
Report Table 5.1
Median Annual Saving Rates, (including Housing Wealth), by Age
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<25 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74 75+-10%
0%
10%
20%
30%
40%
50%
60%
70%
Age Group
Med
ian
Savi
ng R
ate
Report Table 5.2
Median Annual Saving Rates,(Financial Wealth), by Income
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Poorest 2 3 4 5 6 7 8 9 Richest-1.0%
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
Income Decile
Med
ian
Savi
ng R
ate
Report Table 5.3
What happens to (liquid wealth) saving rates when you finish paying off a mortgage?
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Outright (2000), Outright (2005)
Mortgage (2000), Mortgage (2005)
Renter (2000), Renter (2005)
Mortgage (2000), Outright (2005)
-1%
0%
1%
2%
3%
4%
5%
6%
7%
Housing Tenure
Med
ian
Savi
ng R
ate
Report Table 5.7
Do people treat pension saving and non-pension saving as substitutes?
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No Pension (2000), No Pension (2005)
Pension (2000), Pension (2005)
Pension (2000), No Pension
(2005)
No Pension (2000), Pension (2005)
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
Pension Payments
Med
ian
Savi
ng R
ate
Report Table 5.5
Summary – Wealth Distribution• Wealth is distributed unequally throughout the
population– In 2005, many families had no or little liquid wealth– Mean wealth is substantially higher than median wealth– Median financial wealth was very close to zero (<£500) for
families headed by anyone under the age 45.• The patterns according to socio-economic characteristics
are largely as expected:– Financial wealth rises with age (except at the very oldest
ages)– Financial wealth rises with current income
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Summary – Liquid Saving 2000 to 2005• There was very little net saving of liquid financial wealth
between the two years:– Real median family wealth increased from approx. £750 to
approx. £1,100.• Passive accumulation of increases in housing equity
swamped accumulation of more liquid forms of wealth.• Saving in terms of liquid wealth between 2000 and 2005
was highest for those aged between 55 and 59.• Younger and poorer families had particularly low rates of
saving between 2000 and 2005.
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Other related research underway or planned at the IFS...• What has been the effect of the financial crisis on
household wealth and saving?
• Distribution of retirement resources among the oldest households (updating of previous work that summarised the distribution in 2002)
• Estimation of discount rates implied by earnings histories and wealth data
• To what extent is private pension coverage affected by up-front financial incentives to save?
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The wealth and saving of UK families on the eve of the crisisThomas F. CrossleyCormac O’Dea