Intergenerational Developments in Household Saving Behaviour (WP 14/23)

Abstract

This paper examines the saving behaviour of different generations of households in New Zealand over the period 1984 to 2010 using data from the Household Economic Survey. The paper employs a life-cycle framework to estimate regression models that identify the influence of age and birth year on household saving rates. Consistent with the life-cycle hypothesis, the results show that household saving rates exhibit a hump shape over the life cycle. The results also indicate significant differences in the average saving rates of households from different birth cohorts. From the baby boomers onward, the average saving rates of each generation exceed those of the generation preceding it. Although there are differences between the Household Economic Survey and national accounts saving measures, which present a caveat to the analysis, the paper's findings provide some insight into demographic influences on national household saving trends. The results suggest that the movement of the baby boomers into their higher saving years has contributed positively to aggregate saving rates, but that future effects of population ageing are likely to be negative. On the other hand, it is possible that the lift in saving rates over recent generations will provide an ongoing positive contribution to aggregate saving rates throughout the projection period ending 2030.

Acknowledgements

I am grateful to Hamish Low, Andrew Coleman, John Creedy, Grant Scobie, John Gibson, Oscar Parkyn, and Jeff Cope for their insightful comments and suggestions. I would also like to thank Christopher Ball and Talosaga Talosaga for their work in preparing the data. This paper extends research I originally undertook as part of the requirements for the degree of Master of Philosophy in Economics, University of Cambridge, 2013.

Disclaimer

The views, opinions, findings, and conclusions or recommendations expressed in this Working Paper are strictly those of the author(s). They do not necessarily reflect the views of the New Zealand Treasury or the New Zealand Government. The New Zealand Treasury and the New Zealand Government take no responsibility for any errors or omissions in, or for the correctness of, the information contained in these working papers. The paper is presented not as policy, but with a view to inform and stimulate wider debate.