The wealth and saving of UK families on
the eve of the crisis
Thomas F. Crossley and Cormac O’Dea
Institute for Fiscal Studies
© Institute for Fiscal Studies
IFS Retirement Saving Consortium
• Association of British
Insurers
• HM Revenue and Customs
• Bank of England
• Investment Management
Association
• Barclays
• Chartered Institute of
Personnel and Development
• Department for Work and
Pensions
• Financial Services Authority
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• HM Treasury
• Pensions Regulator
• Personal Accounts Delivery
Authority
• Scottish Widows
• The Actuarial Profession
Motivation for this research:
Where to look to study Household Saving?
• Most high profile measure of Household Saving is the ONS
Household Saving Ratio, released quarterly.
– This is a measure of the total saving undertaken in the economy
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Household Saving Ratio, Annual, 1963 - 2009
14%
12%
10%
8%
6%
4%
2%
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
0%
Report Figure 1.1, Source: ONS
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Source: ONS
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2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
9.0%
8.0%
7.0%
6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
-1.0%
-2.0%
2000
Household Saving Ratio, Quarterly, 2000-2010
Household Saving Ratio
• The most high profile measure of Household Saving is the ONS
Household Saving Ratio, released quarterly.
• This is a measure of the total saving undertaken in the economy
– A useful summary of the total volume of saving being done in the
economy.
• But we would caution against relying on it for questions related to
the adequacy of wealth for retirement
– It is dominated by the saving of the those with the greatest income.
– Contains limited information about trends in saving among those
with low and middle incomes.
– An economy-wide average: contains no information on distributional
questions such as who saves and who doesn’t.
– Measured with a great deal of uncertainty
• Calculated as the difference between two large aggregates, themselves measured
with error.
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Can we look at household saving using
microdata?
16%
14%
12%
HSR (Nat. Acc.)
Expenditure and Food Survey
10%
8%
6%
4%
2%
0%
-2%
Year
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In the report, using the British Household Panel
Survey, we calculate two measures of wealth...
• Liquid Financial Wealth
– Balances in savings accounts plus bonds/equities less nonmortgage debt
• Financial and Housing Wealth
– Liquid Financial Wealth plus value of housing less outstanding
mortgage debt
• Use these measures to:
– Calculate saving rates between the two years which is:
© Institute for Fiscal Studies
In the report, using the British Household Panel
Survey, we calculate two measures of wealth...
• Liquid Financial Wealth
– Balances in savings accounts plus bonds/equities less nonmortgage debt
• Financial and Housing Wealth
– Liquid Financial Wealth plus value of housing less outstanding
mortgage debt
• Use these measures to:
– Calculate saving rates between the two years which is:
Wealth2005  Wealth2000
Income2000
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...and summarise the distribution of wealth and
saving according to household type
• We define family groups according to:
– Age, Income, Family Type, Housing Tenure, Pension Payments
– Summarise the distribution of wealth and saving for each group
• Family level analysis
– A family is defined as a single adult or couple with any dependent
children
• What important assets are we missing from the data?
– Cash and current account balances
– Pension Wealth
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The rest of this presentation....
• Summary of wealth distribution in 2005
– Illustrate patterns by age, income
• Summary of saving behaviour between 2000 and 2005
– Again, illustrate patterns by age, income
– Dramatic differences in saving rate depending on whether changes
in housing equity are included in saving or not
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Distribution of Financial Wealth, 2005
Net financial Wealth
(£)
10th percentile
25th percentile
Median
1,091
75th percentile
90th percentile
Mean
Report Table 3.2
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21,617
Distribution of Financial Wealth, 2005
Net financial Wealth
(£)
10th percentile
−7,637
25th percentile
−328
Median
1,091
75th percentile
16,383
90th percentile
58,849
Mean
21,617
Report Table 3.2
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Distribution of Financial Wealth, 2005
Financial Wealth as a Proportion
of Annual Income
<−100%
<−50%
<−25%
< 0%
<25%
<50%
<100%
Total
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Proportion of Families
Distribution of Financial Wealth, 2005
Financial Wealth as a Proportion
of Annual Income
<−100%
Proportion of Families
3.7%
<−50%
7.6%
<−25%
12.5%
< 0%
27.5%
<25%
<50%
<100%
Total
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100.0%
Distribution of Financial Wealth, 2005
Financial Wealth as a Proportion
of Annual Income
<−100%
Proportion of Families
3.7%
<−50%
7.6%
<−25%
12.5%
< 0%
27.5%
<25%
61.1%
<50%
<100%
Total
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100.0%
Distribution of Financial Wealth, 2005
Financial Wealth as a Proportion
of Annual Income
<−100%
Proportion of Families
3.7%
<−50%
7.6%
<−25%
12.5%
< 0%
27.5%
<25%
61.1%
<50%
69.2%
<100%
78.1%
Total
100.0%
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Financial Wealth in 2005, Means, by Age
80,000
Net Financial Wealth – Per Family (£)
70,000
60,000
50,000
40,000
30,000
20,000
10,000
0
-10,000
<25
25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74
Age Group
Report Figure 3.1
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75+
Financial Wealth in 2005,
Means and Medians by Age
80,000
Net Financial Wealth (£) – Per Family
70,000
Mean
60,000
Median (p50)
50,000
40,000
30,000
20,000
10,000
0
-10,000
<25
25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74
Report Figure 3.1
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Age Group
75+
Financial Wealth in 2005, by Age
Net Financial Wealth (£) – Per Family
150,000
130,000
Mean
110,000
p90
p75
90,000
p50 (Median)
70,000
p25
50,000
p10
30,000
10,000
-10,000
-30,000
<25
25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74
Age Group
Report Figure 3.1
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75+
Financial and Housing Wealth in 2005,
by Age
Net Financial and Housing Wealth (£) – Per Family
700,000
Mean
600,000
p90
p75
500,000
p50 (Median)
400,000
p25
p10
300,000
200,000
100,000
0
<25
25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74
-100,000
Report Figure 3.2
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Age Group
75+
Financial Wealth in 2005,
by Income Decile
Net Financial Wealth (£) – Per Family
100,000
Mean
80,000
p90
p75
60,000
p50 (Median)
p25
40,000
p10
20,000
0
-20,000
Poorest
2
3
Report Figure 3.3
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4
5
6
Income Decile
7
8
9
Richest
What happened to the wealth distribution
between 2000 and 2005?
Financial
Wealth (£)
2000
Financial
Wealth (£)
2005
737
1,091
14,980
21,617
10th pct
25th pct
Median
75th pct
90th pct
Mean
© Institute for Fiscal Studies
What happened to the wealth distribution
between 2000 and 2005?
Financial
Wealth (£)
2000
Financial
Wealth (£)
2005
10th pct
-5,408
-7,637
25th pct
-335
-328
Median
737
1,091
75th pct
11,055
16,383
90th pct
41,762
58,849
Mean
14,980
21,617
Report Table 3.1
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What happened to the wealth distribution
between 2000 and 2005?
Financial
Wealth (£)
2000
Financial
Wealth (£)
2005
Housing
Wealth (£)
2000
Housing
Wealth (£)
2005
10th pct
-5,408
-7,637
0
0
25th pct
-335
-328
0
0
Median
737
1,091
12,283
60,070
75th pct
11,055
16,383
81,730
172,565
90th pct
41,762
58,849
172,063
294,889
Mean
14,980
21,617
60,255
115,139
Report Table 3.1
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Turning to saving...
• A reminder:
– We calculate saving rates between the two years which is:
Wealth2005  Wealth2000
Income2000
• We now show median saving rates.
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Median Annual Saving Rates,
(Financial Wealth), by Age
6%
Median Saving Rate
5%
4%
3%
2%
1%
0%
-1%
<25
25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74
Age Group
Report Table 5.1
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75+
Median Annual Saving Rates,
(including Housing Wealth), by Age
70%
60%
Median Saving Rate
50%
40%
30%
20%
10%
0%
-10%
<25
25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74
Age Group
Report Table 5.2
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75+
Median Annual Saving Rates,
(Financial Wealth), by Income
4.0%
3.5%
Median Saving Rate
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
-0.5%
-1.0%
Poorest
2
Report Table 5.3
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3
4
5
6
Income Decile
7
8
9
Richest
What happens to (liquid wealth) saving rates
when you finish paying off a mortgage?
7%
6%
Median Saving Rate
5%
4%
3%
2%
1%
0%
-1%
Outright (2000),
Outright (2005)
Report Table 5.7
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Mortgage (2000),
Renter (2000),
Mortgage (2005)
Renter (2005)
Housing Tenure
Mortgage (2000),
Outright (2005)
Do people treat pension saving and nonpension saving as substitutes?
3.5%
3.0%
Median Saving Rate
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
-0.5%
No Pension (2000),
No Pension (2005)
Report Table 5.5
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Pension (2000),
Pension (2005)
Pension (2000), No Pension (2000),
No Pension (2005)
Pension (2005)
Pension Payments
Summary – Wealth Distribution
• Wealth is distributed unequally throughout the population
– In 2005, many families had no or little liquid wealth
– Mean wealth is substantially higher than median wealth
– Median financial wealth was very close to zero (<£500) for families
headed by anyone under the age 45.
• The patterns according to socio-economic characteristics are
largely as expected:
– Financial wealth rises with age (except at the very oldest ages)
– Financial wealth rises with current income
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Summary – Liquid Saving 2000 to 2005
• There was very little net saving of liquid financial wealth between
the two years:
– Real median family wealth increased from approx. £750 to approx.
£1,100.
• Passive accumulation of increases in housing equity swamped
accumulation of more liquid forms of wealth.
• Saving in terms of liquid wealth between 2000 and 2005 was
highest for those aged between 55 and 59.
• Younger and poorer families had particularly low rates of saving
between 2000 and 2005.
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Other related research underway or planned at
the IFS...
• What has been the effect of the financial crisis on household
wealth and saving?
• Distribution of retirement resources among the oldest
households (updating of previous work that summarised the
distribution in 2002)
• Estimation of discount rates implied by earnings histories and
wealth data
• To what extent is private pension coverage affected by up-front
financial incentives to save?
© Institute for Fiscal Studies
The wealth and saving of UK families on
the eve of the crisis
Thomas F. Crossley
Cormac O’Dea
© Institute for Fiscal Studies