Week 3 & 4: The Household Sector

Question 1

What % of 2022 GDP did China save?

Answer 1

25-35%

Question 2

What % of 2022 GDP did the UK save?

Answer 2

1.69%

Question 3

Why does China want to reduce saving?

Answer 3

To rebalance the economy away from reliance on exports/investment and towards consumptions

Question 4

What literature do we use to understand the role of rising education, housing and health expenditurez?

Answer 4

Chamon and Prasad (2010)

Question 5

In 1990 and 2005 what % of Chinese households owned their homes.

Answer 5

1990: 17%
2005: 86%

Question 6

In 1995 and 2005 what % of consumption was on health and education?

Answer 6

1995: 2%
2005: 14%

Question 7

What does the U-Shaped pattern of saving tell us about saving behaviour?

Answer 7

Younger and Older households have the highest saving rates

Question 8

Why does saving drop for middle ages?

Answer 8

Spending on families and education/buying homes

Question 9

Why do elders save more?

Answer 9

Replacement rate for pensions dropped from 80% to 60% following 1997 pension reform

Question 10

How does state enterprise restructuring increase savings?

Answer 10

A fall in employment within SOEs
=More employment in private sector
=More uncertainty
=More precautionary saving

Question 11

What 3 reasons for high savings rate?

Answer 11

1. Shift in social expenditure
2. Housing
3. Employment restructuring

Question 12

What literature shows the role of uncertainty?

Answer 12

He et Al (2014)

Question 13

What did He et Al (2014) show?

Answer 13

How precautionary saving changed after severe layoffs in SOEs

Question 14

What did He et Al (2014) discover?

Answer 14

Precautionary saving accounted for 30% of total savings of SOE workers between 1995 and 2002

Question 15

What is the iron rice bowl?

Answer 15

A system of guaranteed employment and social security within SOEs

Question 16

What are some empirical results in He et Al (2014)

Answer 16

-Households not covered by public health care had to save more
-Having more children reduced wealth
-Having more boys increased insurance for parents when old so lower need to save

Question 17

What was the reform?

Answer 17

Smaller and loss-making SOEs were privatised or went bankrupt

Question 18

What was the spirit of the 1997 SOE reform?

Answer 18

“To grasp the large let go of the small”

Question 19

What does the data suggest about saving between workers in bigger and smaller SOEs?

Answer 19

Smaller SOE workers had stronger precautionary saving motives due to a greater risk of unemployment

Question 20

What does the literature describes the role of siblings and effect of brothers on household saving?

Answer 20

Zhou (2014)

Question 21

What % of debtors borrowed from family in 2008?

Answer 21

80%

Question 22

What 2 ways can having brothers reduce saving?

Answer 22

1. Sharing risks and extending borrowing limits
2. Sharing the costs of supporting parents

Question 23

According to data what happened with a declining rate of brothers?

Answer 23

A rise in savings rate

Question 24

How does brothers affect those with higher risks

Answer 24

Due to sharing risk, individuals facing higher uncertainties have large brothers effects

Question 25

Where is the brother effect less found?

Answer 25

Regions with better developed financial systems

Question 26

How much does an additional brother reduce a households saving rate?

Answer 26

5%

Question 27

What does the decline in the average number of brothers explain?

Answer 27

The 38% increase in aggregate savings in urban China

Question 28

What literature explains the role of marriage in China?

Answer 28

Wei and Zhang (2011)

Question 29

What is the sex ratio?

Answer 29

Number of men per woman in the premarital cohort

Question 30

What do Chinese parents with sons do?

Answer 30

Save more to improve marriage prospects

Question 31

What does an increasing sex ratio cause?

Answer 31

More difficulty for men to get married

Question 32

What is the correlation between sons and savings?

Answer 32

Higher savings rates for households with sons

Question 33

Explain how a higher sex ratio increases savings

Answer 33

Higher sex ratio =Higher competition of households with a son =Higher cost of housing -All households increase savings to afford local houses

Question 34

What was the average sex ratio in 2007?

Answer 34

1.136 boys to 1 girl

Question 35

What literature explains the role of financial inclusion on savings?

Answer 35

Guariglia, Horsewood and Li (2016)

Question 36

What is financial inclusion?

Answer 36

Access and use of formal financial services at affordable costs

Question 37

What 3 facts are useful to understand the Chinese economy on a household scale?

Answer 37

1. Unbalanced economy with a high savings rate 2. Unbalanced usage of financial services 3.Large use of informal finance

Question 38

What does an inclusive financial system promote?

Answer 38

-Higher economic growth -Less persistent inequality and poverty

Question 39

What are measures of financial inclusion?

Answer 39

-Use of formal accounts -Savings at formal financial institutions -Credit cards

Question 40

What are urban households more likely to have than rural ones?

Answer 40

Bank accounts/bank loans and a higher level of financial inclusion

Question 41

What is financial inclusion associated with?

Answer 41

Lower level of savings/saving ratio

Question 42

What number of Chinese adults don't have a bank account (World Bank, 2018)

Answer 42

225 million

Question 43

Why is holding too much cash problematic?

Answer 43

Does not circulate in the economy Unsafe and hard to manage

Question 44

What % of adults only hold cash as an asset?

Answer 44

67.6%

Question 45

How much more likely are those recently diagnosed with a health condition to hold cash as safe assets?

Answer 45

2.7%

Question 46

What can health shocks lead to?

Answer 46

A higher probability of holding only cash as a safe asset

Question 47

Why are health shocks associated with higher cash holdings?

Answer 47

Occur in areas that don't provide immediate reimbursement of healthcare expenditures

Question 48

What literature explains life insurance in China?

Answer 48

Wang, Zhang & Guariglia (2019)

Question 49

Why is China an 'insurers dream'

Answer 49

-3rd largest insurance market -Leading the world in premium growth -Low insurance penetration

Question 50

How many Chinese people hold life insurance?

Answer 50

114 million

Question 51

What % of Chinese trust insurance products?

Answer 51

33.9%

Question 52

What plays an important role in determining the demand for life insurance?

Answer 52

Education Income Social connections

Question 53

What is the level of financial literacy in China?

Answer 53

Low

Question 54

What are those with lower financial literacy knowledge more likely to not do?

Answer 54

Participate in life insurance markets

Question 55

What can increase participation in the insurance market?

Answer 55

Knowledge to reduce information asymmetry or disbelief