1  Introduction

Discussions about saving generally tend to focus on measures of saving that are derived from the income and expenditure flows in the National Accounts (the flow approach). In New Zealand, both aggregate and household saving, measured as the residual between current income and expenditure, have declined. A similar trend has occurred in other OECD countries. The reasons for this decline in saving rates are not well understood, either for New Zealand or for other countries. Measurement issues are undoubtedly part of the explanation.

An alternative measure of household saving can be derived from the net wealth data constructed by the Reserve Bank of New Zealand. This data is the first long-run time series for household net wealth published in New Zealand and was introduced in June 2000. The data are obtained from regular quarterly and monthly surveys conducted by the Reserve Bank and an annual December survey. Definitions and explanations can be found in Thorp and Ung (2000).[1]

Net wealth is the value of households’ assets (financial and real) less household debt, i.e. liabilities in the form of mortgages, hire purchase and credit cards loans, student loans and other debt. Saving can then be measured as the change in the stock of accumulated net wealth (the stock approach).

The primary purpose of this paper is to examine household net wealth in New Zealand and to compare the portfolios of New Zealand households with those in other OECD countries. Households’ balance sheets reflect the importance of housing on both sides of the balance sheet, the asset and liability side, and is the focus of much of the discussion. The paper also contrasts the flow and stock approaches to measuring saving, clarifying the conceptual differences between the two approaches and providing an estimate of the household saving rate derived by both methods.

To foreshadow the findings in this paper, the stock and flow measures of saving are quite different in New Zealand and other OECD countries. In terms of the composition of households’ net wealth, the ratio of real assets to disposable income in New Zealand is close to OECD levels. A key difference, however, is that households’ financial net wealth as a proportion of disposable income has been falling in New Zealand since the late 1980s, whereas it has been rising in other OECD countries. As a result, housing assets in New Zealand have become an increasing share of household portfolios, whereas in other countries this share has been declining. Financial deregulation has played an important role in the accumulation of net wealth and its composition.

The remainder of the paper is organised as follows. Part 2 discusses the flow and stock measures of household saving. Part 3 shows the link between the two measures and discusses when they differ. Part 4 analyses household saving and net wealth in New Zealand. The New Zealand experience is compared to those in other OECD countries in Part 5. Part 6 discusses financial liberalisation and housing wealth in more detail. Concluding remarks are contained in Part 7.