Household Sector Flashcards
What were the savings rates in 2022 in US, UK and China
US=1.57%, UK=1.69%, China=25-35%.
Explain the role of rising housing, education and health expenditure on savings (Intro, dataset, facts, explanation, conclusion)
Intro: Savings increased in recent years, 1990: 17% of households owned a home to 2005: 86% owned a home. Health and education expenditure 2% in 1995 to 14% in 2005 of total consumption expenditure.
Dataset: Urban Household Surveys, 1990-2005, 10 provinces.
Facts: Increased disposable income and consumption. U-shaped pattern of saving.
Explanation:
1. Shift in social expenditure - increased health and education expenditure, 1997 pension reform, increased savings of older people.
2. Housing - houses sold to workers.
3. State enterprise restructuring - market economy, more unstable, precautionary savings.
Conclusions: How to decrease savings? Increased social safety net, public provision of education and financial market development resulting in more borrowing and less saving.
Explain the role of Uncertainty on savings (Intro, background, data, results, robustness test, conclusions)
Intro: Economic reform caused increased uncertainty and precautionary saving.
Background: 1995-1996 50% of SOEs reported losses, so layoff of SOE workers, increasing uncertainty.
Data: CHIP, 1995: 2977 SOE workers to 2002: 1700 SOE workers.
Results: Increase in theta 1 as unemployment and income risk increases.
Robustness test: Workers in LSOEs have higher precautionary savings than CSOEs due to higher unemployment risk.
Conclusions: Strong evidence of saving stemming from increase in unemployment risk doe SOE workers.
Explain the role of siblings on savings (Intro, background, impact, explanation, conclusions)
Intro: Underdeveloped financial markets causing 80% of people to borrow from relatives. Brothers decrease savings as sharing risks increase, extending borrowing limits and sharing the cost of supporting parents.
Background: Decreasing brothers = increase in savings over time.
Impact: Negative effect of brothers on savings, brother than sister decreases the saving rate by 5%. The effect is lower in rural areas where people can share risks with village members.
Explanation:
1. Income uncertainty.
2. Supporting parents - supported by male children mainly.
3. Different income - driven mainly by low income group.
Conclusions: A decrease in brothers explains a 38% increase in aggregate savings in urban China.
Explain the role of marriage on savings (Intro, marriage market and savings, household-level evidence, evidence across provinces, conclusions)
Intro: Sex ratio in China is increasing over time, therefore parents save more to improve their son’s marriage prospects. Households with daughters save less and take advantage of higher saving rates of their future son-in-laws.
Marriage market and savings: 92% of son-households state at least one factor directly related to their son as their primary or secondary reason for saving.
Household-level evidence: CHIP 2002, strong positive effect of the local sex ratio on the household saving rate for households with a son.
Evidence across provinces: Sex ratio increases across provinces, local saving rate increases in regions with a more unbalanced sex ratio.
Conclusions: Accounts for about half of the actual increase in household savings rate over 1990-2007.
Explain the role of financial inclusion on savings
Financial inclusion is the access, availability and use of formal financial services.
Positive link between financial development and economic growth in China.
Financial inclusion is associated with a lower probability of savings, as well as a lower saving ratio. These effects are often greater in rural areas.
Explain the relationship between health shocks and cash holdings
China accounts for 13.2% of the world’s unbanked, people often only hold cash, which is a problem as cash doesn’t circulate in the economy and can impair economic growth. Cash can be seen as unsafe and hard to manage.
China has an unhealthy ageing population, older people are more prone to health shocks. Individuals who have been diagnosed with a new acute condition are 3% more likely to only hold cash as safe assets.
Increase health shocks, increase holding only cash as a safe asset for healthcare expenditure.
Explain the relationship between financial literacy and life insurance demand in China
114 million Chines people hold life insurance out of 1.4billion. This number is so low due to disbelief in insurance products usually due to lack of knowledge, only 34% of households trust insurance products.
Knowledge is required to reduce information asymmetry and increase participation in the market.
Increase in financial literacy will increase the purchasing of insurance and premium paid.
To achieve this, we should educate the general public so they understand insurance products and ‘grow out of the growing pain’.
