The Euro Area Household Finance and Consumption Survey (HFCS)

1. The Euro Area Household Finance and Consumption Survey (HFCS) Carlos Sánchez Muñoz European Central Bank Measuring multidimensional aspects of quality of life European Directors of Social Statistics 23 September 2010

2. Outline of the presentation (1) Why a Eurosystem Household Finance and Consumption Survey? (2) HFCS characteristics / areas covered (3) Potential use to measure quality of life (4) Issues to be addressed (5) Data release plans for the HFCS

3. Outline of the presentation (1) Why a Eurosystem Household Finance and Consumption Survey? (2) HFCS characteristics / areas covered (3) Potential use to measure quality of life (4) Issues to be addressed (5) Data release plans for the HFCS

4. Why a Eurosystem survey on household finances and consumption? • Support policy analysis in all major functions of the Eurosystem • Monetary policy • Financial stability • Payment systems, etc. • Micro data permit to analyse impact of shocks, policies and institutional changes on specific groups of HHs/individuals: • Lowest/highest income/wealth deciles • Over-indebted • Credit-constrained, etc. • Quite relevant as to quality of life measurement too

5. HFC surveys already existed in some euro area countries (CY,ES, IT, FR, GR, PT, FI, NL) Euro area analysis impossible (countries missing, inference difficult) Only partial coverage of survey variables Lacking comparability (e.g. different definitions) Related cross-national surveys available for the euro area (SHARE/SILC), but different target populations and/or different contents Why are the current data insufficient?

6. Outline of the presentation (1) Why a Eurosystem Household Finance and Consumption Survey? (2) HFCS characteristics / areas covered (3) Potential use to measure quality of life (4) Issues to be addressed (5) Data release plans for the HFCS

7. General characteristics • Decentralized effort. Each NCB finances and conducts its own wealth survey (in a few cases in cooperation with NSIs) • The ECB coordinates and ensures methodological consistency • Eight NCBs adapt an existing survey; eight NCBs set up new surveys • Sample size: c.a. 52,000 households (euro area + country representativeness)

8. General characteristics (cont’d) • Survey frequency: every 2 / 3 years • Survey mode: CAPI (computer- assisted personal interviews)  facilitates automatic data checking / improves quality • Oversampling of the wealthyencouraged:important to (1) get more efficient samples; and (2) reduce response bias • Panel component: IT, DE, ES, NL, BE • Common (multiple) imputation methodology

9. HFCS output / Eurosystem questionnaire • Mandatory set of core variables (through convergence process) • Voluntary non-core variables • Payment habits • Effects of the crisis on household finances • Extra details on (core) wealth components, etc. • Country-specific add-ons (not in euro area data pool) Ex-ante commitment on output harmonisation (No precedent for wealth surveys!) • Standardised output variables (questions vary from country to country: Eurosystem blueprint questionnaire as supporting tool) • Common definitions • Common methodology (probability sampling, weighting, etc.)

10. Areas covered by the HFCS [Further details available in the Annex] • Real and financial assets • Liabilities Household wealth Pension wealth • Future pension entitlements Household Savings / Wealth accumulation • Income • Consumption • Inheritances and gifts • Demographics • Employment Other covariates

11. Outline of the presentation (1) Why a Eurosystem Household Finance and Consumption Survey? (2) HFCS characteristics / areas covered (3) Potential use to measure quality of life (4) Issues to be addressed (5) Data release plans for the HFCS

12. Partial assessment of households’ wellbeing may potentially lead to wrong policy conclusions Need to consider together income, consumption and wealth So far, ESS focus on income and consumption HFCS in combination with ESS surveys (e.g. SILC, HBS) as a valuable opportunity in the current context Quality of life: dimensions to be considered

13. Eurostat / INSEE sponsorship on “Measuring progress, wellbeing and sustainable development” ECB contributing to TF-Households Perspective and distributional aspects of income consumption and wealth IMF/FSB report to G-20 finance ministers/NCB governors “The Financial Crisis and Information Gaps (G-20 Report)” Recommendation 16OECD to link national accounts data with distributional information ECB to contribute to OECD Working Group on Income Distribution (planned for 2011) Momentum: ongoing initiatives

14. Sub-population developments may cancel out / hide behind macro aggregates Value added of survey data: At a micro level  permits analysis of individual household behaviour At an aggregate level  may complement NAs with distributional (not level) information What can we learn on top ofmacro data?

15. Do levels of household debt raise sustainability concerns? Portfolio choice and determinants of household demand for different assets (e.g. stocks) Financial innovation at the retail level Of special relevance to the measurement of quality of life: Marginal propensity to consume out of wealth: e.g. effect of real estate price declines on consumption Credit constraints:effects on consumption The impact of aging / pension reforms on household saving and consumption Wealth inequality And specifically on HH wealth: what can we learn on top ofmacro data?

16. Example of research potential: household heterogeneity [Additional examples in the Annex] • Household heterogeneity in IT [Similar in most other EU countries]: • Wealth distributed more unequally than income • Few wealthy households exert substantial effects on aggregate statistics •  Ignoring wealth effects when measuring quality of life would likely bias the analysis Wealth distribution in Italy Source: SHIW

17. Outline of the presentation (1) Why a Eurosystem Household Finance and Consumption Survey? (2) HFCS characteristics / areas covered (3) Potential use to measure quality of life (4) Issues to be addressed (5) Data release plans for the HFCS

18. Issues to be addressed  from macro (national accounts) to micro (survey) income/wealth • Under-representation of specific subpopulations in surveys (e.g. immigrants, homeless, people living in institutions, etc.) • Households often underreport income and wealth • Statistical concepts vs. laymen questions understandable to average respondents  some degree of approximation • Substantive NA estimates for the household sector • Adjustments to HH disposable income in NAs : • Imputed rent on owner-occupied housing • Individual consumption expenditure of general government • Pension adjustments for the difference between social contributions and social benefits in the reference period

19. Other issues to be addressed • Frequency • SILC: every year • HFCS: every two/three years • HBS: every five years Sector accounts: Quarterly / Annual • Timeliness • SILC: T + c.a. 1 and ½ years • HFCS • T + c.a. 2 years • HBS Sector accounts: T + 90

20. Other issues to be addressed (cont’d) • Should the work lead to breaking down NA aggregates or to a separate set of supplementary distributional indicators? • (If the former): necessary to project/carry forward survey results? • A single survey on income, consumption and wealth or a combination (statistically matching) of different surveys?

21. Outline of the presentation (1) Why a Eurosystem Household Finance and Consumption Survey? (2) HFCS characteristics / areas covered (3) Potential use to measure quality of life (4) Issues to be addressed (5) Data release plans for the HFCS

22. Data dissemination Two modalities: • Micro data • HFCS indicators • Anonymised micro data for researchers  simplified access procedure, centralised at ECB (making use of Eurostat’s list of admissible research institutions) • HFCS indicators/tables • Distributional (not levels) • portfolio composition, indebtedness, saving and access to finance, wealth distribution, possibly consumption • Disaggregated by household characteristics • E.g. age, employment status, education of RP; HH size, position in income or wealth distribution

23. Data dissemination: envisaged timeline Release of first results: 2012

24. Thank you very much for your attention For further information / survey materials, Public HFCS website: http://www.ecb.europa.eu/home/html/researcher_hfcn.en.html

25. Annex

26. Examples of research potential: Household indebtedness What do macro statistics show? • Household indebtedness, % of disposable income in Portugal

27. Examples of research potential : Household indebtedness (cont’d) What do micro data reveal? • Between 1994 and 2000, debt burden fell in all age and income groups, as • Interest rates fell down • Increase in aggregate household indebtedness (between 1994 and 2000) mainly driven by previously unindebted households Debt service payment over disposable income, by income and age group

28. Examples of research potential: household heterogeneity • Household heterogeneity: participation decision • Households with low wealth very unlikely to participate in (risky) financial markets • Even among wealthy households, participation in stock markets not that usual • Italy: share of households holding financial assets, by income class Source: SHIW 2008

29. Examples of research potential: effects of monetary policy decisions 300 bp increase in interest rates on Spanish HHs Overall limited effect, but: • Top of income distribution: negligible effects • Bottom of income distribution: (a) 7.3% drop in disposable income; (b) Fraction of households with high debt burden (>40% of disposable income) increases by 6.5 pp % of Households whose debt burden exceeds 40% of income

30. HFCS contents: blueprint questionnaire Pre-interview: selection of main respondent / Household listing Employment Pensions and insurance policies Demographics Income Real assets and their financing Intergenerational transfers / gifts Other liabilities / Credit constraints Consumption Private businesses / Financial assets Post-interview: interviewer debriefing Pre/post interview Individual questions Household questions

31. HFCS contents: blueprint questionnaire (II) Pre-interview: selection of main respondent / Household listing Employment Income Demographics Pensions and insurance policies Real assets and their financing Intergenerational transfers / gifts Other liabilities / Credit constraints Consumption Private businesses / Financial assets Post-interview: interviewer debriefing / paradata

32. Demographics (age, gender, education, country of birth, marital status, relationship in household) Employment (status, main employment, employment history, expected age of retirement, etc.) Future pension entitlements / life insurance (public, employment-related and private pension plans) Income (12-month gross income by individual sources / comparison with average / next-year expectations) Individual questions (HH members 16+) Pre-interview: selection of respondent/ Household listing Employment Pensions and insurance policies Demographics Income Real assets and their financing Intergenerational transfers / gifts Other liabilities / Credit constraints Consumption Private businesses / Financial assets Post interview

33. Real assets: main residence / other properties / vehicles / valuables Private businesses: passive vs. self-employment, activity, legal form, employees, value, etc. Financial assets : deposits / mutual funds / bonds / stocks / managed accounts Debts / financial constrains: mortgages / overdrafts / credit lines / credit-card borrowing / leases / consumer / instalment loans, etc. collateral, purpose, outstanding balance, maturity, monthly payments, refinancing, fixed/adjustable interest rates, etc. Household-level questions (I) Pre-interview: selection of respondent/ Household listing Employment Income Demographics Pensions and insurance policies Real assets and their financing Intergenerational transfers / gifts Other liabilities / Credit constraints Consumption Private businesses / Financial assets Post interview

34. Consumption: Food in and out of the home/ comparison with average and with income / saving motives /emergency assistance Household-level questions (II) Pre-interview: selection of respondent/ Household listing Employment Income Demographics Pensions and insurance policies Real assets and their financing • Int. transfers / gifts: when, how much, from whom, expected inheritance, etc. Intergenerational transfers / gifts Other liabilities / Credit constraints Consumption Private businesses / Financial assets Post interview

35. Envisaged HFCS indicators (tentative)

36. Envisaged HFCS indicators (tentative)