Eva Sierminska (CEPS/INSTEAD Luxembourg)

“Decomposing household wealth portfolios across countries: an age old question?”

abstract

Using harmonized wealth data and a novel decomposition approach in this area, we show that cohort effects exist in the income profiles of asset and debt portfolios for a sample of European countries, the U.S. and Canada. We find that younger households’ participation decisions in assets are more responsive to income than older households. Family structure plays a significant role in explaining cross-country differences for both cohorts. Examining institutional differences, we find that in more financially developed and economically open countries, households are less likely to own housing but more likely to be in debt. Typical mortgage characteristics and mathematical literacy are also correlated with debt participation across countries. These findings could have important implications for policy setting during times of financial unease for the young, as well as for the future in helping secure adequate income for the elderly. Our results suggest that there is scope for policies which promote asset participation for young households and debt participation, where there is a need for consumption smoothing, for older households.