Household Ratio Guidelines for the Amount of Investments
25 Pages Posted: 20 Aug 2016 Last revised: 2 Dec 2016
Date Written: August 18, 2016
Some textbooks suggest using financial ratios to provide simple indicators of whether households are making appropriate financial decisions. We investigate three investment ratios mentioned in textbooks: investments to net worth, investments to annual income, and investments to total assets. We conduct regressions on respondent evaluation of the adequacy of retirement income, among households with a non-retired head in the 2013 Survey of Consumer Finances. The investments to total assets ratio has the strongest relationship to adequacy, controlling for selected household characteristics. The investments to net worth ratio (Capital Accumulation ratio) is inferior to the other two ratios.
Keywords: Capital Accumulation Ratio, financial ratios, investing, lifecycle theory of savings, Survey of Consumer Finances, retirement
JEL Classification: D14, D91, G11, J26
Suggested Citation: Suggested Citation