Spicers Household Savings Indicators - Methodology
There are two complementary and equally important methods by which household savings can be measured.
The ‘Flows’ Approach measures all net new savings by calculating all fresh funds’ inflows into household savings assets and subtracting any funds’ outflows. This measure shows what net new savings dollars have entered the household savings pool over the quarter. However, there is insufficient data to reliably calculate a net funds’ flow measure for household savings.
The ‘Stocks’ Approach measures the change in ‘net worth’ (market value of savings less market value of liabilities). This measure includes both fresh saving (dissaving) plus any capital gain (loss) that has occurred over the period under review. The Spicers Household Savings Indicators are constructed using the Stocks Approach because reliable data is available.
Values measured
Assets
The household net worth indicators indicate changes in household stocks (where included) and changes in the prices and volumes of the following assets:
- household deposits at M3 institutions1
- superannuation fund assets
- private holdings of Government Securities
- deposits in solicitors’ trust accounts
- unit trusts, life insurance bonds and group investment funds
- life insurance policies and privately held shares
- private portfolios, trusts and estates as managed in pools by Trustee companies.
Liabilities
The household net worth indicators also indicate changes in prices and volumes of household liabilities. The ‘Extended Household Credit’ measure of household liabilities is developed by the Reserve Bank of New Zealand. This measure of liabilities includes households’ loans, credit card debt and other borrowings from financial institutions.
Interpreting the Spicers Household Savings Indicators
Given that the Stocks Approach is used in constructing the Household Savings Indicators, the figures should be used inductively to measure savings flows across time. All the indicators incorporate changes in both the volume and price components of assets and liabilities.
The range of assets included in the households financial assets measure should also be borne in mind when interpreting changes in the indicators. For example, while mortgage borrowing is a component of household financial liabilities, the corresponding asset, residential property, is not. Both residential housing assets and mortgage borrowing are therefore excluded from Financial Worth. However, additions to the value of the residential housing stock can be considered to be ‘savings’ since they represent additions to net worth. Both residential housing assets and mortgage borrowing are therefore taken into account by the All Element Index.
It should be noted that increases in mortgage borrowing are not necessarily used to fund housing purchases. They may also be used to fund the purchase of consumer durables or applied to the operation of businesses.
This highlights another area of caution: it is difficult to draw a clear distinction between the financial affairs of some households and those of related businesses (such as owner-operated firms).
1 M3 institutions: Financial institutions which are surveyed by the Reserve Bank in compiling information in the assets and liabilities of registered banks. M3 institutions include the Reserve Bank, registered banks and other financial institutions that offer similar deposit-accepting services.