Savers take high road to wealth, Treasury report shows

By Neville Bennett

Friday 16th July 2004

Every society is concerned about the level of savings. They fund investment and supplement retirement incomes. The issue is important because pensions are a growing burden in ageing societies.

Households are consuming units for goods and services but some income is saved. Movements in the saving ratio over time are a crucial part of consumption behaviour, as spending is an important component of GDP.

If consumers are feeling well off, their increased spending can greatly stimulate the economy.

If they are in a thrifty mood, they can (as in Japan) contribute to deflation and negative economic growth.

If the saving ratio is low, as in New Zealand and the US, some investment is dependent on offshore contributions.

The OECD has made a pioneering attempt to assess saving ratios in the three biggest economies.

But it is difficult as the US, Japan and the European Union have different accounting standards. Some US studies, for example, complicate matters by excluding pension contributions from saving.

The standard measures show a remarkable change in consumer behaviour. In 1991, the Europeans and Japanese saved 14% of their income and even Americans saved 7%.

By 2002, the saving ratio had fallen to 10% in the EU, 5% in Japan and 2% in the US.

The OECD tries to revise these standard figures by including a learned discussion on other variables, including the effect of public services, tax and pensions.

This raises Japan's rate to 8%, but lowers the EU rate to 9% and the US to -1%.

Other reasons for the differences are not investigated. There could be different attitudes, for example, to consumer durables such as washing machines. Some consumers regard these as investment.

There are also psychological and cultural attitudes involved in some people being "big spenders" while the thrifty act like "squirrels."

The OECD does not venture into these differences but a NZ Treasury report (Working Paper 04/08) examines many variables of incomes, net worth, age and gender.

Its main focus is the impact of workplace and personal superannuating schemes on net worth.

It also examines whether, if people have a scheme, they neglect to build up other financial assets. The data are derived from the Household Saving Survey, 2001.

The figures are quite startling. For example, if one partner in a household has a workplace scheme, the net worth of that couple will be $60,000-215,000 more than couples without such a scheme.

Excellent appendices reveal that 88% of unpartnered individuals have neither a workplace nor a personal super scheme.

The remainder have workplace schemes with a mean value of $52,000 or personal schemes valued at $48,000. Couples have a higher level of structured saving but 31% have just one partner in a scheme.

While the mean value is $50,000, this is highly skewed for the median is only $12,000. This is higher for females; they are less involved in workplace schemes but make greater use of personal super perhaps they like portability.

Workplace schemes are an important asset for about one in six of partnered males. The median value is $150,000.

There is international literature about savers with structured schemes and other assets.

The New Zealand evidence is that people with schemes have a higher net worth than people without.

They also make additional savings and the unpartnered try harder.

But the more couples have in super schemes, "the more they tend to have in other forms of wealth." It can be quantified: a 10% increase in super is associated with 1% increase in other assets.

The report suggests some means of increasing involvement in workplace schemes through better information but does not venture into incentives. Couples who have an involvement with workplace schemes have an average net worth of $269,000, with super schemes a net worth of $249,000.

For the whole population it is $172,000. So the median net worth of squirrels is about $100,000 higher than those without schemes.

This is an important contribution to our knowledge about the distribution of wealth.

Comments from our readers

No comments yet