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Household Saving Behaviour in New Zealand: Why do Cohorts Behave Differently?

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  • Grant M Scobie
  • John K Gibson

    ()
    (The Treasury)

Abstract

The aim of this paper is to add to the understanding of saving decisions by households. The saving behaviour of households is found to differ depending on the birth cohort of the household head. This paper seeks to explain why this pattern might exist. It is based on an analysis of synthetic cohorts derived from unit record data taken from the Household Economic Survey (HES) for the March years 1984 to 1998. The need to use synthetic cohorts arises as the HES is not a longitudinal panel survey, but rather a time series of independent cross-sectional samples. We use a range of regression models to separate out the effect of age, birth-year cohort and year on saving rates. The typical saving rates for the cohorts born between 1920 and 1939 are found to be significantly lower relative to the younger and older cohorts studied. This pattern of cohort effects is robust to the inclusion of conditioning variables; to the trimming from the sample of households with either negative or very large ratios of savings to consumption, and to different definitions of saving. Some exploratory investigation supports the hypothesis that changes in the economic and policy environment help explain the different saving behaviour of different birth cohorts. Tentative results suggest that more ?favourable environments are associated with lower rates of lifetime saving.

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Bibliographic Info

Paper provided by New Zealand Treasury in its series Treasury Working Paper Series with number 03/32.

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Length: 33
Date of creation: Dec 2003
Date of revision:
Handle: RePEc:nzt:nztwps:03/32

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Keywords: Household saving rates; cohort effects; New Zealand; economic and social policies;

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References

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  1. Iris Claus & Grant Scobie, 2002. "Saving in New Zealand: Measurement and Trends," Treasury Working Paper Series, New Zealand Treasury 02/02, New Zealand Treasury.
  2. Jagadeesh Gokhale & Laurence J. Kotlikoff & John Sabelhaus, 1996. "Understanding the Postwar Decline in U.S. Saving: A Cohort Analysis," NBER Working Papers 5571, National Bureau of Economic Research, Inc.
  3. Steven F. Venti & David A. Wise, 1996. "The Wealth of Cohorts: Retirement Saving and the Changing Assets of Older Americans," NBER Working Papers 5609, National Bureau of Economic Research, Inc.
  4. Shorrocks, A F, 1975. "The Age-Wealth Relationship: A Cross-Section and Cohort Analysis," The Review of Economics and Statistics, MIT Press, vol. 57(2), pages 155-63, May.
  5. Feldstein, Martin & Liebman, Jeffrey B., 2002. "Social security," Handbook of Public Economics, Elsevier, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 4, chapter 32, pages 2245-2324 Elsevier.
  6. John K Gibson & Grant M Scobie, 2001. "Household Saving Behaviour in New Zealand: A Cohort Analysis," Treasury Working Paper Series, New Zealand Treasury 01/18, New Zealand Treasury.
  7. Feldstein, Martin S, 1974. "Social Security, Induced Retirement, and Aggregate Capital Accumulation," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 82(5), pages 905-26, Sept./Oct.
  8. Jappelli, Tullio, 1999. "The Age-Wealth Profile and the Life-Cycle Hypothesis: A Cohort Analysis with Time Series of Cross-Sections of Italian Households," Review of Income and Wealth, International Association for Research in Income and Wealth, International Association for Research in Income and Wealth, vol. 45(1), pages 57-75, March.
  9. Verbeek, M.J.C.M. & Nijman, T.E., 1990. "Can cohort data be treated as genuine panel data?," Discussion Paper, Tilburg University, Center for Economic Research 1990-64, Tilburg University, Center for Economic Research.
  10. David A. Wise & Robin L. Lumsdaine, 1990. "Aging and Labor Force Participation: A Review of Trends and Explanations," NBER Working Papers 3420, National Bureau of Economic Research, Inc.
  11. Deaton, Angus, 1985. "Panel data from time series of cross-sections," Journal of Econometrics, Elsevier, Elsevier, vol. 30(1-2), pages 109-126.
  12. Orazio Attanasio & James Banks, 1998. "Trends in household saving: a tale of two countries," IFS Working Papers, Institute for Fiscal Studies W98/15, Institute for Fiscal Studies.
  13. Feldstein, Martin, 1996. "Social Security and Saving: New Time Series Evidence," National Tax Journal, National Tax Association, vol. 49(2), pages 151-64, June.
  14. Caballero, Ricardo J, 1991. "Earnings Uncertainty and Aggregate Wealth Accumulation," American Economic Review, American Economic Association, American Economic Association, vol. 81(4), pages 859-71, September.
  15. Angus Deaton & Christina Paxson, 2000. "Growth and Saving Among Individuals and Households," The Review of Economics and Statistics, MIT Press, vol. 82(2), pages 212-225, May.
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Cited by:
  1. Janice Burns & Maire Dwyer, 2007. "Households'attitudes to savings, investment and wealth," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, Reserve Bank of New Zealand, vol. 70, December.
  2. Olivia S. Mitchell & John Piggott & Michael Sherris & Shaun Yow, 2006. "Financial Innovation for an Aging World," NBER Working Papers 12444, National Bureau of Economic Research, Inc.

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