Life-Cycle Savings and Public Policy

information only on flows, which makes it impossible to compute an estimate of

the stock dimension of savings. Data also on stocks are available only for some

variables, namely checking and saving accounts and stocks and bonds. For these

variables, the information on flows is somewhat scarce due to many invalid

nonresponses or refusals to respond. Since the problem of missing data is

particularly serious for the variables on flows, whenever advisable we have

computed savings as first differences in the stocks. Thus, for each year we have

determined mean holdings by year of birth of the household head and then we

have computed the annualized difference in the mean stock for each cohort.

Because of the severity of the problem of missing financial saving observations, the

analysis based on the first measure of saving uses a sample of only 46,051

households. Another problem concerns the unavailability of important saving

components, such as those related to cash, capital gains, consumer loans,

mortgages, and real asset holdings. For all these reasons, th e saving measure

obtained by adding up individual components is expected to differ substantially

from the residual measure. An important issue is also the unavailability of data on

employers’ mandatory and voluntary contributions to funded and unfunded

pension schemes. The second measure of savings is determined by subtracting

household total consumption, which includes expenditure on durable and

nondurable goods and on services, from total disposable income. Total disposable

income includes labor, business, asset, and transfer income and is computed by

subtracting the total amount of personal taxes and social security contributions

from household total gross yearly income as reported at the time of the last

interview. Apart from total income, all the other yearly income and saving

variables are determined by taking household-level averages when the respondent

reports different annual values at different interviews.

8.3 HOUSEHOLD SAVINGS

The analysis that follows focuses, first, on cross-sectional saving patterns and, then,

on cohort behavior to identify life-cycle changes. For the analysis, all the data are

weighted by the available household weights to represent the universe of US

households.

Cross-Sectional Profiles of Household Saving

In the first part of this section we focus on the individual components of household

saving and classify them into two groups:

(a) Discretionary savings, which are defined as changes in wealth that are under the

control of the household and concern both the absolute and relative

composition of the asset portfolios.

320 Chapter 8 Household Saving Behavior and Pension Policies in the United States