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Life Cycle Saving in a High-Informality Setting

Author

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  • Joubert, Clement

    (World Bank)

  • Kanth, Priyanka

    (World Bank)

Abstract

Low- and middle-income countries are experiencing fast population aging and reductions in extreme poverty, increasing theoretical incentives to save for old age, but empirical evidence on household wealth accumulation over the life cycle is lacking. Using age-cohort-time decompositions on 18 years of micro-data from Pakistan, we show that the average household accumulates wealth equivalent to 5 years’ worth of consumption between the ages of 25 and 65. Furthermore, this is mostly in the form of illiquid residential housing and land in rural areas. Examination of housing acquisitions, renovations, and dwelling characteristics over the life cycle reveals that wealth accumulation in 2001-2018 resulted partly from active investment in housing and partly from capital gains. To the extent that keeping all wealth in the form of housing may be sub-optimal, this constrained ability to save for the long term could motivate the extension of contributory pension instruments to informal sector workers, the majority of the workforce in this setting.

Suggested Citation

  • Joubert, Clement & Kanth, Priyanka, 2025. "Life Cycle Saving in a High-Informality Setting," IZA Discussion Papers 17876, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp17876
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    More about this item

    Keywords

    social protection; savings; informality; aging;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D15 - Microeconomics - - Household Behavior - - - Intertemporal Household Choice; Life Cycle Models and Saving
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies
    • J46 - Labor and Demographic Economics - - Particular Labor Markets - - - Informal Labor Market

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