Veritas propter investigationem [Truth through research]
TitleIntergenerational Developments in Household Saving Behaviour (2014)
AuthorsMark Vink
InstitutionNew Zealand Treasury
TopicsSaving rates
 Life-cycle models
 Survey results
CountryNew Zealand
Date Published2014
Date posted on PR16 Jul 2015
Vink, M, (2014). Intergenerational Developments in Household Saving Behaviour (2014) New Zealand Treasury,

PensionReforms’ summary and comments

Good household saving data are hard to find and that is the case in New Zealand.  There have been some improvements over the years but public policy decisions (and much public commentary) have been based on inadequate evidence.


The ‘Household Expenditure Survey’ (HES) is a survey carried out by Statistics New Zealand (see here for more).  It “…collects information on household expenditure and income, as well as a wide range of demographic information on individuals and households.”  It contributes to the re-weighting of the consumers price index (CPI), to estimates of GDP and “…an indication of the overall living standards of New Zealanders.”


This 2014 report looked at household-level data for each of 15 years (1983/84 to 1997/98) as well the four triennial surveys in 2000/01, 2003/04, 2006/07 and 2009/10 to analyse the “life-cycle savings behaviour of different generations of households.”


There were two main findings:

1. “…household saving over the life cycle exhibits a hump shape, as predicted by the basic life-cycle model, with a peak when household heads are aged in their mid-to-late fifties…”


2. “Second, there are significant differences between the estimated average saving rates of different cohorts over the sample age range of 19 to 74 years old.”


However, there was an overlying trend:

“…after accounting for age and one-off time effects, there is a near-linear trend increase in the average saving rates of cohorts born between the early 1930s and those born in the 1980s. As a result, from the baby boomers onward, the saving rates of each generation exceed those of the generation preceding it.”


This trend seems associated with rises in disposable income but without a commensurate increase in consumption expenditure.


“These two [main] findings are robust to various sensitivity tests including the use of alternative measures of saving; the introduction of conditioning variables to account for differences in household characteristics; and relaxing the assumption of constant age, cohort and time effects.”


They are also consistent with other work already covered on PensionReforms – for example, see here.


Because of differences between the data used in the HES and the national accounts saving measures, the report cautions against “overly strong inferences”.  HES procedures and purpose “present[] an important caveat to the analysis.”  As ever, further work is needed to resolve these difficulties.


The report concludes by suggesting that the data series seems to “…provide some insight into the underlying influence of demography on national household saving trends.  In particular, an increase in the proportion of the population in high-saving age groups contributed approximately one quarter of the overall trend increase in the aggregate HES saving rate between 1984 and 2010.”


However, as the baby-boomers move into retirement, we should not expect that particular demographic ‘dividend’ to continue.


The remaining three-quarters of the aggregate increase between 1984 and 2010 is “…attributable to the rise in average saving rates of successive cohorts born since 1930.  If the differences in average rates between cohorts persist into the future, cohort effects are likely to continue to make a positive contribution to aggregate saving rates throughout the projection period ending 2030.”


PensionReforms suggests that this is all as might have been expected.  Over the 26 years measured, New Zealand has become wealthier and, although households do not gain the full advantage of that improvement, we must expect a share to pass in that direction.  Despite the movement of baby-boomers through into retirement, there seems no present reason for that “near-linear” increase in saving rates to stop.  It all depends on the country’s underlying economic fortunes.


So, instead of worrying (as some do) about saving, investment and growth in that order, the country should focus on strategies to promote growth and let the saving issue take care of itself.


PensionReforms suggests though that New Zealand needs a dedicated survey that tracks the same households over an extended period, much as SoFIE tried to do (see here, here, here and here) and as HILDA does in Australia (see here).  (File size 510 KB; 33 pp) 730