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The Dynamics of Saving and Borrowing
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Transcript of The Dynamics of Saving and Borrowing
Stephen McKay, Personal Finance Research Centre
The dynamics of saving and borrowingUniversity of Bristol, 17 March 2006
Personal Finance I: Savings, Pensions and Debt
2 Plan
• Introductory remarks
• Data
• Focus on saving– Cross-sectional picture– Some panel results: considerable change
• Outline panel/snapshot results, for borrowing &
arrears
• Conclusions
3 Importance of Saving
• Retirement Pensions and living standards– Shift away from state to private sources of
income, esp. for those on lower/middle incomes• SERPS->S2P; 2 Green Papers; SHPs.• Introduction of Pension Credit
– Alleged £27 billion ‘savings gap’– Turner Commission reports: response awaited
• Working age, dealing with adversity and ‘shocks’– ‘Asset-based welfare’
• Child Trust Fund; Saving Gateway
4 Looking to the future, do you expect your income during your retirement to be …
3725
16 15 13
519
26 23 20
0%
20%
40%
60%
80%
100%
16-19 20-29 30-39 40-49 50-59 Age group
Per
cen
t
Less thanenough to meetyour needs
Just aboutenough to meetyour needs
More thanenough to meetyour needs
5 Overall borrowing
• Rising levels of borrowing, with secured lending
growing faster than unsecured – But total wealth remains much larger.
• Debt as a proportion of income rising over time,
with debt/income reaching 130% compared with
<80% in late 1980s– Trends similar in other OECD countries
• Interest payments/income (debt-service ratio)
stable since 1999, and half the level of early 1990s.
• But distributional issues do not reflect the
aggregate picture …
6 Motives to save: Keynes (1936)
• ‘To build up a reserve against unforeseen contingencies’
(precautionary)
• ‘To enjoy a sense of independence and the power to do
things’
• ‘To provide for future needs of the individual’ [life-cycle
hypothesis]
• ‘To bequeath a fortune’
• ‘To satisfy pure miserliness’
• ‘To secure a mass de manoeuvre to carry out speculative or
business projects’
7 Data analysed in the study
• British Household Panel Study (BHPS) 1991-
2001, but especially 1995 & 2000.– Families and Children Study (FACS) –
surveys in 1999, 2000, 2001 and 2002 (… continuing though to 200?).
– ONS 2000 Study of Psychiatric Morbidity Among Adults Living in Private Households.
8 British Household Panel Study (BHPS)
• Data for 11 waves analysed: 1991-2001
• Data on saving for all individuals, for all waves.– Data on asset levels in 1995, 2000, [2005].
• Data on borrowing in 1995, 2000, [2005]
• May be used to analyse – incidence of saving and motivations– effect of life events on saving/borrowing– effect of savings/debt on subsequent outcomes
(including ‘asset effect’)
9 Links between credit and saving [2000]
(row percents) Saving Not saving
All 43% 57%
Owes [any credit] 43 57
Owe – credit cards 46 54
Owe – personal loan 46 54
Owe – overdraft 33 67
Owe – student loan 24 76
10 Extent of saving
• 43% of individuals were saving in 2001– 30% ‘saving regularly’– 27% saving ‘for the long-term’– Average amount £100 per month (median)
• 59% of households were saving
• Among working age families over time:– 33% consistent savers– 50% reluctant savers
11 Range of saving motives
• Main motives for saving were – ‘no specific reason’ [41%]– ‘holidays’ [22%]– ‘old age’ [9%]– ‘special events’ [5%]– ‘house purchase’ [5%]– ‘car’ [4%]
12 Saving, regularly, follows a weak life-cycle pattern
05
1015202530354045
16-19
20-24
25-29
30-34
35-39
40-44
45-49
50-54
55-59
60-64
65-69
70-74
75+
Per
cen
t sa
ving
reg
ular
ly Men
Women
13 Saving among different birth cohorts, by age and year of birth – even weaker ‘life-cycle’ pattern
0
10
20
30
40
50
60
15 20 25 30 35 40 45 50 55 60 65Age
Pe
r c
en
t s
av
ing
1927-34 1935-44
1945-54 1955-64
1965-75 1975-85
1965-74 cohort: more saving than 1955-64 cohort saving
1975-85 cohort: fewer saving than 1965-74 cohort saving
1935-44 cohort and 1927-34 cohorts equally likely to save
14 Higher income associated with saving (and with saving more)
0
10
20
30
40
50
60
70
80
90
1 2 3 4 5 6 7 8 9 10
Income deciles
PersonFamily unitHousehold
15 Subjective well-being increases saving – whatever the income
Income
quintile
‘Comfort-
able’
‘All right’ ‘Getting
by’
‘Quite
difficult’
‘Very
difficult’
1 low 54 40 24 13 18
2 55 57 44 31 30
3 74 71 53 45 26
4 83 79 67 59 38
5 high 86 76 66 63 [66]
16 Those with pensions more likely to have discretionary savings
0%
10%
20%
30%
40%
50%
60%
1 2 3 4 5
Income group (quintile)
Paying into apersonal pension
No personalpension
Occupationalpension
No occupationalpension
17 Panel analysis enables us to look at lifetime events
• Key birthdays, e.g..– Age 20 men:
• 38% saving, 18% o/p; 13% p/p
– Age 21 men:• 42% saving, 39% o/p, 30% p/p
• Buying a house, before and after– Saving 43% -41%– O/p 31% -35%– P/p 18% -21%
18 Patterns of saving (1 = saving)
Wave of survey (1991 .. 2000) N / per cent 1 2 3 4 5 6 7 8 9 10
- - - - - - - - - - 17.7% 1 1 1 1 1 1 1 1 1 1 7.2% 1 - - - - - - - - - 2.0% - - - - - - - - - 1 1.7% - 1 - - - - - - - - 1.3% … many other combinations … 70% - - - - 1 - - - 1 1 1 case
19 ‘Types’ of saver
Per cent Income
variability
(C.V.)
Median
monthly
income
Ever-
social
tenant
Consistent
saver
33% 28% £2500 18%
Consistent
non-saver
53% 37% £1800 71%
Sporadic 13% 33% £2200 11%
20 Overall patterns
• All cases analysis– Around 40% saving in any year.
• Paired-cases– 21% of non-savers start saving in next year– 31% of savers stop saving in next year
• Easier to identify what might STOP saving, than
what might START saving – stop-events are
decisive; start events are potential.
21 Events linked to starting to save
• Av. Rate among non-savers = 21% p.a.
• ‘very difficult’ financially to ‘comfortably off’: 42%
• FT Student => employee: 38%
• Unem => employee: 31%
• Single => married: 31%
• New family => 23%
• Relatively few events have large effects; most people
don’t start saving even when they happen.
22 Events making you stop saving
• Av. Rate among savers = 31% p.a.
• Finances ‘comfortable’ to ‘quite difficult’: 80%
• Employee:– to unemployed: 72%– to family carer: 61%– to long-term sick: 59%
• Reaching SPA: 42% (men); 35% (women)
• New family: 41%
• Married => divorced/separated: 47%
• Some events usually lead to end to saving
23 Savings behaviour
• Many people not saving
• Considerable change among individuals over time
• Patterns with age and income clear, but not
particularly strong
• But a strong link between subjective well-being and
saving behaviour
24 Owe money by BHPS variable age
42
6055
49
33
18
5
0
10
20
30
40
50
60
70
16-24 25-29 30-39 40-49 50-59 60-69 70+
25 Owe money by BHPS variable religion (ioprlg1)
4429
4032
2920
2718
3142
1921
4335
32
0 10 20 30 40 50
None
C of E
Catholic
Ch Scot
Free Presyb
Methodist
Baptist
Congreg/URC
Other Chr denom
Chris no denom
Islam
Hindu
Jewish
Sikh
Other
26 Credit commitments (BHPS/NMG)
1995 2000 2003
Bank
Owe anything, among individuals 36 36 34
Owe anything, among households 50 51
Median amount owed £890 £2,000
Top quarter £2,700 £5,000
Top 10% £5,000 £9,000
Overall: Heavy burden 3 2
Somewhat of a burden 9 9
27 Has arrears on credit or bills[ONS Survey]
13
32
34
35
38
49
0 10 20 30 40 50 60
All
Spent time in institution pre-16
Previous suicide attempt
Agoraphobia
Moderate depression
Moderate/severe alcohol dependence
28 Borrowing tends to persist, with turnover (BHPS 1995 & 2000)
25
14
16
45
Borrower bothyears
1995-only
2000-only
Neither year
29 Borrowing tends to persist, with turnover higher for 20-59 year-olds (BHPS 1995 & 2000)
31
1818
33 Borrower bothyears
1995-only
2000-only
Neither year
30 Arrears also generally short-lived (FACS)
• One family in three (34%) with arrears in one year
didn’t have them the next.
• Conversely, one family in four (26%) without
arrears in one year did have them the following
year.
• Arrears on household bills are more persistent than
on consumer credit (under half, compared to more
than half, exit such arrears each year).
31 Conclusions
• Considerable change among individuals both with
respect to saving and borrowing
• Patterns with age and income clear, but not
particularly strong