1 Introduction
This paper has two major objectives. The first is to present estimates of the household saving patterns for different aged cohorts. The second is to offer an explanation of why saving behaviour might be different for different aged cohorts.
It is extremely difficult to glean the implications of saving for say retirement income from aggregate data on the household sector. Aside from difficulties of measurement, a low overall level of saving in ageing population could be consistent with high saving by those in their working years offset by dissaving among an expanding older population of retirees. In short, a better understanding of saving by households requires an analysis of micro data based on individual household records.
This study uses individual records from the Household Expenditure Survey (HES) for a 15-year period to construct synthetic cohorts (Section 2). Regression models estimate the average saving rates for each five-year birth cohort, after allowing for age and year effects together with a set of conditioning variables (Section 3). Saving rates are found to differ markedly across cohorts. Section 4 presents some tentative findings, which suggest that household saving behaviour may well be influenced by economic conditions and social policies. It is argued that the cohort patterns of saving may reflect different conditions which faced different cohorts as they moved through their working ages, especially those existing during their peak saving years. Conclusions follow in Section 5.
The study finds that different cohorts do display different saving patterns. Those born from 1920 to 1939 are found to have significantly lower saving rates than older or younger cohorts. The paper finds that these differences are consistent with the fact that each cohort faced a different set of economic and social policies. The environment that prevailed especially during peak earning and saving periods was different for the different cohorts. In particular a more “favourable” environment that prevailed in the period 1950-1980 seems to explain why certain cohorts had lower saving rates. The implication is that extent of public provision of social welfare and retirement benefits together with conditions in labour markets, do influence the rate at which households will save.
