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

1. Recent Trends in the Evolution of Household Saving and Wealth Components in Canada Presentation to the OECD Working Party on Financial AccountsPatrick O’HaganSystem of national Accounts, Statistics CanadaOctober 10, 2005

2. 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.

3. Downward trend in personal saving and saving rate continues

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

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

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

7. Fixed income assets sharply in decline

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

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

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

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

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

13. Household debt continues to reach significant new highs

14. … as the upward trend in consumer indebtedness continues

15. Credit cards lead the growth consumer indebtedness in recent years

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

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

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

19. Overall household leverage relatively stable between 16% and 19%

20. Capital gains result in a different interpretation of personal saving

21. 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