Rich watching their pennies after almost losing their assets and income
The rich are watching their pennies more than households with relatively low levels of financial assets, according to the Reserve Bank of Australia.
Noting the fall in financial asset prices over recent years had led many households to increase their savings, the RBA assistant governor Philip Lowe suggests the biggest savers were those concerned about losing their jobs.
Conversely, the smallest increases in saving were for those who have become less concerned about losing their jobs.
Households that own their dwellings outright are also not participating in Australia's savings phenomenon as much as mortgage-encumbered households, Lowe notes.
"The saving ratio has increased for those that rent, for those with a mortgage and for those that own their dwelling outright, although, the increase in saving has been smallest for those households that own their dwelling outright," he told the Australian Economic Forum.
It was also apparent that the increase in savings had been largest for younger households and smallest for older households.
"This result holds for both households that are renting and those that are owner-occupiers," he notes.
"Taken together, this evidence is consistent with the idea that higher housing prices and debt levels have contributed to a reassessment of saving decisions, although, obviously, the reasons for the increase in saving go well beyond what has happened in the housing market.
"Higher housing prices have required higher deposits and this requires more savings.
"This trend has probably been reinforced by developments on the lending side, with most lenders lowering their maximum loan-to-valuation ratio over recent years,” Lowe says.
"Saving decisions today are also likely being influenced by the earlier rise in debt levels relative to incomes and by debt servicing burdens that are staying higher for longer.
"The adjustments seem to have been particularly pronounced among younger households who are hoping to enter the housing market or who have recently entered the market."
Lowe notes there was a significant rise over time in the share of total expenditure on housing.
"When the Household Expenditure Survey was conducted in the early 1980s, housing accounted for a little less than 13% of total expenditure.
"By way of contrast, in the recent survey this share had increased to 18%, the largest change in any single expenditure category.
"The bulk of this change took place over the past decade and largely reflects the rise in interest payments on mortgage debt due to higher levels of debt relative to income."
The speech noted the relationship between the change in saving and a household's holdings of financial assets (excluding deposits) among those with above-average holdings of financial assets and those with below-average holdings.
The RBA has calculated the median change in the saving ratio for each group between 2008 and 2009, the year of the financial crisis.
"It is clear that for all five income quintiles, households that had relatively high levels of financial assets before the financial turmoil increased their saving by more than households with relatively low levels of financial assets."
He concluded his speech by suggesting it was "reasonable to expect that, at some point, the impact of these factors will begin to wane."
"Although exactly when remains an open question," he notes.
