RDP 2014-03: Household Saving in Australia 5. Conclusion

This paper investigates household saving behaviour in Australia, as well as the drivers behind the recent rise in the aggregate household saving ratio. Our results explaining household saving behaviour in the cross-section are consistent with theory and previous findings. As might be expected, households' saving ratios tend to increase with income, while saving is found to decrease with wealth and gearing. Financially constrained and migrant households tend to save more than other households, all else equal. While saving differs substantially across age groups we find that, at least in part, this reflects differing circumstances.

Our results suggest that the rise in household saving was driven by changing saving behaviour associated with certain household characteristics, rather than changing characteristics. In particular, households with less secure income and those vulnerable to asset price shocks, younger households with debt and older households with wealth increased their propensity to save between 2003/04 and 2009/10. While our results can inform which households changed their saving behaviour, we are unable to definitively say what caused this change in behaviour. Our interpretation of these results is that precautionary saving motives, a more prudent attitude towards debt and an effort to rebuild wealth after the financial crisis contributed to the rise in the household saving ratio, although other interpretations of the data are possible. An increase in the propensity to save by more highly educated households, relative to lower-educated households, also suggests a reduction in future income expectations.