Savings and the household balance sheet

Release date
01/06/2005
Reference
Vol. 68. No. 2. June 2005
Author
Khoon Goh
Main file
The past decade and a half has seen a consistent decline in the household savings rate in New Zealand. This trend is not isolated to New Zealand, but is also occurring in other OECD countries. In addition, household indebtedness has risen at a faster rate than in other OECD countries. It is difficult to know how much further the savings rate will fall and household indebtedness will increase, but an adjustment in behaviour is likely at some point. The low household savings rate has contributed to an ongoing reliance on foreign savings. The banking system appears to manage the risks associated with using foreign savings well. However, as New Zealand's reliance on foreign savings increases, the economy at large potentially becomes more exposed to changes in international investor preferences, while households may become more sensitive to changes in interest rates, the labour market or house prices.