Household Sector Saving and Wealth Accumulation - Evidence from Balance Sheet and Flow of Funds Data

Financial Services Authority Occasional Paper No. 5

44 Pages Posted: 23 Oct 2003

See all articles by Iftikhar Hussain

Iftikhar Hussain

University College London - Department of Economics; University of Oxford

Date Written: February 2000

Abstract

In this paper I investigate the make-up of household sector wealth. In particular I look for evidence that there has been a move towards increased equity participation ('equitisation'). I also touch upon the issue of the 'wealth effect', and whether this has led to a significant rebalancing of portfolios. Analysis of the composition of household sector wealth shows that the share of equities has increased dramatically, suggesting that equitisation has been a powerful force in recent years. However, when I investigate where the household sector has actually channelled savings the evidence in favour of the equitisation story is less forceful. Flows to bank deposits (along with investment in life products) remain the most important form of saving. Nevertheless, equity mutual funds (investment and unit trusts, including PEPs and equity-based ISAs) have increased in popularity in recent years. These trends suggest that the equitisation process will be slow and steady, rather than a sudden switch leading, for instance, to rapid bank disintermediation. With regards to the wealth effect, it is probably fair to say that this has had a significant impact on aggregate savings flows. In particular, many employers have taken contribution holidays or reduced contributions in response to pension fund surpluses.

Keywords: Equity mutual funds, pension fundsavings, Bank deposits, wealth effect

JEL Classification: L5, D1,JO

Suggested Citation

Hussain, Iftikhar and Hussain, Iftikhar, Household Sector Saving and Wealth Accumulation - Evidence from Balance Sheet and Flow of Funds Data (February 2000). Financial Services Authority Occasional Paper No. 5, Available at SSRN: https://ssrn.com/abstract=428080 or http://dx.doi.org/10.2139/ssrn.428080

Iftikhar Hussain (Contact Author)

University of Oxford

Mansfield Road
Oxford, Oxfordshire OX1 4AU
United Kingdom

University College London - Department of Economics ( email )

Gower Street
London WC1E 6BT, WC1E 6BT
United Kingdom

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