Recent Trends in the Evolution of Household Saving and Wealth Components in Canada

Presentation to the OECD Working Party on Financial Accounts

Patrick O’HaganSystem of national Accounts, Statistics Canada

October 10, 2005

Household Sector Asset-Liability Detail

This presentation is the result of the 2004 WPFA discussions, specifically on the topic of the Financial Accounts database and the need for additional details on households

Both the U.S. and Canada were among those that supported the need for more detailed information on the financial position of households, and mentioned that the current international asset-liability breakdowns did not meet the analytical needs in their respective countries

The Secretariat then asked the U.S. and Canada to present, at a forthcoming meeting, some of the ways in which detailed data on households were used in their respective countries. This presentation is the result.

Downward trend in personal saving and saving rate continues

Personal Saving Rate

0

2

4

6

8

10

12

14

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

1991-2004

%

Household financial asset acquisitions slow, in line with the downward trend in the saving rate

Household Financial Investment to Disposable Income

0

5

10

15

20

1990

1992

1994

1996

1998

2000

2002

2004

%

Household demand for funds continues to advance, in line with the decline in the saving rate

Household Borrowing to Disposable Income

012345678

1990

1992

1994

1996

1998

2000

2002

2004

%

Household net worth average annual growth over 6%, despite the 2001 stock market correction

Household Net Worth, % change

0

2

4

68

10

12

14

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

%

Fixed income assets sharply in decline

Deposits, Debt Instruments and Other Financial Assets Relative to Total Financial Assets

0

10

20

30

40

50

60

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

1990-2004

%

Equity assets take up a substantial, and increasing, share of household portfolios

Equity Assets to Total Financial Assets

0

10

20

30

40

1990

1992

1994

1996

1998

2000

2002

2004

1990-2004

%

High growth financial assets overtake residential real estate in the mid-1990s

Household Sector Selected Assets

0

500000

1000000

1500000

2000000

250000019

90

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

$mill

ions

Residential Real Estate Equity, Insurance and Pensions

Equity and life insurance and pension assets drive asset growth, largely via appreciation

Household Sector, Growth Assets

0200000400000600000800000

100000012000001400000

90Q

1

91Q

1

92Q

1

93Q

1

94Q

1

95Q

1

96Q

1

97Q

1

98Q

1

99Q

1

00Q

1

01Q

1

02Q

1

03Q

1

04Q

1

05Q

1

$mill

ions

Life Insurance and Pensions Equity

Net worth advances relative to income, but is not driven by saving

Household Net Worth to Disposable Income

4

4.5

5

5.5

6

6.5

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

Financial assets assume greater importance over the 1990s, though less so in recent years

Household Financial Assets to Total Assets

0.50.520.540.560.580.6

0.620.64

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

%

Household debt continues to reach significant new highs

Household Debt to Disposable Income

707580859095

100105110

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

%

… as the upward trend in consumer indebtedness continues

Consumer Credit to Disposable Income

15

20

25

30

35

1990

1992

1994

1996

1998

2000

2002

2004

%

Credit cards lead the growth consumer indebtedness in recent years

Components of Consumer Debt - Bank Credit Cards(Excludes Amount Securitized)

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

$Millions

Mortgage debt also outpaces income growth, but at a slower pace than consumer credit

Mortgage Debt to Disposable Income

50556065707580

1990

1992

1994

1996

1998

2000

2002

2004

Home equity has increased in recent years, in line with the housing boom

Home Equity

2.5

2.7

2.9

3.1

3.3

3.5

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

Real Estate / Mortgages

… however, adjusted for the strong growth in home equity line of credit this may not be the case

Components of Consumer Debt - Bank Lines of Credit and Other(Excludes Amount Securitized)

0

100,000

200,000

300,000

400,000

500,000

600,000

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

$mill

ions

Overall household leverage relatively stable between 16% and 19%

Household Leverage

14.515

15.516

16.517

17.518

18.519

19.520

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

1990-2004

%

Household Debt to Net Worth

Capital gains result in a different interpretation of personal saving

Modified Personal Saving Rate(Including Capital Gains)

-15-55

1525354555

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

%

Summary and future work It is clear that capital gains have strongly influenced the

household sector financial positions over the last 15 years, and help to explain the downward trend in personal saving

In order to further explore these effects, additional financial instrument details will be added in the near future

Another significant and emerging issue is the impact of the aging of the post-war baby-boom generation. Growing numbers of baby-boom pensioners will continue to consume, but using a source of funds other than income – that is, dis-saving in financial instruments. This will put further downward pressure on personal saving, and present a challenge for accurate forecasts of economic activity

Addressing this issue has resulted in the development of a Pension Satellite Account – a current work in progress

In Canada, the Financial Account and Balance Sheet Account continue to evolve in relation to emerging needs